Buffett on acquisition trail with $9bn Lubrizol deal

Elizabeth Fournier
BERKSHIRE Hathaway’s purchase of Ohio chemical maker Lubrizol for $9bn (£5.6bn) is one of the biggest deals ever for Berkshire chairman Warren Buffett, who is quickly making good on the promise of “major acquisitions” that he made in his annual shareholder letter last month.

The price tag for Lubrizol is at a premium of 28 per cent to its closing price on Friday, valuing the lubricant additive company at $135 per share. Lubrizol’s shares gained 27.7 per cent to close at $134.6 yesterday – close to the offer price.

Berkshire Hathaway’s annual report for 2010 also detailed the type of acquisition Buffett would be seeking, after he declared to shareholders that his “trigger finger is itchy” to start spending the fund’s $38.2bn cash pile.

The criteria included companies with at least $75m of pre-tax earnings, consistent earning power, good returns on equity while employing little or no debt, and “simple businesses”.

Lubrizol seems to be an exact fit for Buffett’s strict criteria. Its revenue last year hit $5.4bn, when it generated a cash flow of close to $690m.

It’s also a market leader in its sector – claiming the world’s largest market share in the lubricant additives business, even in the face of competition from Exxon and Shell’s Infineum joint venture.

The company will keep its Ohio base, and continue to be managed by current chief executive James Hambrick.

Lubrizol is Buffett’s second biggest acquisition in the last five years after Burlington Northern, which he paid $26bn for in November 2009. The deal is expected to be completed by the third-quarter of this year.