OMAHA, Neb. — Warren Buffett’s company said Monday it will spend about $9 billion cash to add specialty chemical maker Lubrizol Corp. to the eclectic mix of businesses inside Berkshire Hathaway Inc.
The purchase may help satisfy Buffett’s appetite for large acquisitions to boost Berkshire’s earnings power, but the deal is still significantly smaller than last year’s $26.7 billion acquisition of the Burlington Northern Santa Fe railroad.
“Lubrizol is exactly the sort of company with which we love to partner — the global leader in several market applications run by a talented CEO, James Hambrick,” Buffett said in a statement.
Two years ago, Berkshire invested $3 billion in preferred shares of Dow Chemical to help finance Dow’s purchase of specialty chemical maker Rohm & Haas. That deal likely gave Buffett insight into the high-margin specialty chemical business.
Dow paid about $16.5 billion for Rohm & Haas in 2009.
In Monday’s deal, Berkshire will pay $135 per share, a 28 percent premium to Lubrizol’s closing stock price Friday of $105.44. The transaction also includes about $700 million in net debt.
Lubrizol, of Wickliffe, Ohio, makes chemicals for pharmaceutical companies, fuel additives for gasoline and diesel and other ingredients for the transportation sector. Last month, it reported that its fourth-quarter profit climbed 17 percent because of a $19 million tax benefit and higher sales. The company’s revenue grew 11 percent to $1.32 billion.
Berkshire already owns a conglomerate of more than 125 manufacturing and service businesses called Marmon Holdings that may use some of Lubrizol’s products. Marmon’s businesses serve the transportation, energy and construction markets, and Marmon makes products ranging from railroad tank cars to metal fasteners.
Buffett biographer and Berkshire shareholder Andy Kilpatrick said he thinks Lubrizol will be a good fit because it appears to be a solid company.
“He’s paying a reasonable premium, and he’s getting an entire business with a brand name,” said Kilpatrick, the stockbroker-author of “Of Permanent Value, the Story of Warren Buffett.”
Stifel Nicolaus analyst Meyer Shields said in a research note that Lubrizol should complement Berkshire’s other businesses, and the deal wasn’t surprising after Buffett’s talk in his shareholder letter about actively hunting for acquisitions. Shields maintains a “Hold” rating on Berkshire’s stock, and said he believes the stock is trading close to its fair value.
Berkshire, which is based in Omaha, Neb., owns roughly 80 subsidiaries, including insurance, clothing, utility, furniture, jewelry and corporate jet firms. It also has major investments in such companies as Coca-Cola Co., Washington Post Co. and Wells Fargo & Co.
Buffett, whose investing decisions are carefully scrutinized by the world of finance, said earlier this month that while he’s interested in making acquisitions, it’s hard to find big businesses that fit into Berkshire well. He also noted that businesses that do appeal to him usually aren’t selling at the right price.
Berkshire finished 2010 with about $38 billion cash on hand, so it had the resources ready for a deal.
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