Buffett pulls trigger to buy Lubrizol for $9 billion

Reuters News
Posted: Mar 22, 2011 11:48 AM
Buffett pulls trigger to buy Lubrizol for $9 billion

NEW YORK/BANGALORE (Reuters) - Billionaire Warren Buffett's Berkshire Hathaway Inc struck a deal to buy lubricants maker Lubrizol Corp for $9 billion in cash to tap rising demand for chemicals used to operate engines and machinery.

Just two weeks ago, Buffett wrote to Berkshire shareholders vowing to use its huge cash pile on acquisitions. "Our elephant gun has been reloaded, and my trigger finger is itchy," the 80-year-old investor wrote in his annual letter.

Lubrizol, will continue to be led by its current management team under James Hambrick, the companies said.

"Lubrizol is exactly the sort of company with which we love to partner," Buffett said in a statement on Monday.

Berkshire, which had amassed about $38 billion of cash by the end of last year, will acquire Lubrizol for $135 per share, about a 28 percent premium to its closing price on Friday. Berkshire will also assume about $700 million of Lubrizol's debt.

The deal is Berkshire's biggest since it bought Burlington Northern Santa Fe for more than $26 billion in late 2009. It extends the trend of Berkshire expanding in basic industries, which includes Buffett's recent deals for Marmon Holdings and Israel's Iscar Metalworking.

Thomas Russo, who helps invest more than $3 billion at Gardner Russo & Gardner, said he believes the investment is positioned to take advantage of increasing demand for Lubrizol's products as countries around the world industrialize further. Around 11 percent of Gardner Russo & Gardner holdings are invested in Berkshire shares.

"It's certainly a full price -- especially if you think back what the opportunity could have been had they bought at the bottom of 2008 or 2009's market selloff," Russo said. "But it's all about the forward looking returns and I suspect that the rest of the world's demand for the products will grow."

Lubrizol makes lubricants for engines, especially large trucks, buses and boats. Demand for the company's products should continue to rise as shipping of goods increases around the world.

In February, Lubrizol posted strong quarterly profit and issued a bullish forecast for 2011, signaling demand for lubricants continues to recover with the economy.

Wickliffe, Ohio-headquartered Lubrizol, founded in 1928 but which traces its roots back as far as the 1870s when it began as BFGoodrich Performance Materials, employs 6,900 staff worldwide, producing specialty polymers and additives used in everything from engine oil and personal care products to pharmaceuticals and coatings.

Earlier this year, Lubrizol agreed to buy rival Nalco's personal care business, which makes ingredients for hair, skin and home care products, for $166 million.

Citi and Evercore Partners are acting as financial advisers to Lubrizol, which owns and operates plants in 17 countries.

Shares of Lubrizol rose 27 percent before the bell on Monday. They closed at $105.44 on Friday on the New York Stock Exchange.

(Reporting by Thyagaraju Adinarayan and Michael Erman, Additional reporting by Jonathan Stempel in New York and Ernest Scheyder in Chicago; editing by Gopakumar Warrier, Dave Zimmerman)