Berkshire Hathaway to buy Lubrizol for about $9 bn

Warren Buffett’s Berkshire Hathaway agreed to buy Lubrizol, the world’s largest producer of lubricant additives, for about $9 billion in the cash-flush investor’s second-biggest acquisition in the past five years.

Berkshire will pay $135 a share in cash, 28 per cent more than Lubrizol’s closing share price on March 11, the Omaha, Nebraska-based company said in a statement today. The purchase also includes a further $700 million of net debt.

Buffett is using his almost $40 billion pile of cash to pursue bigger acquisitions after Berkshire generated almost $1 billion in free cashflow a month last year and as interest rates near zero per cent limited returns in fixed-income markets. The 80-year-old wrote to investors last month, saying his “elephant gun has been reloaded, and my trigger finger is itchy.” The purchase is second only to Berkshire Hathaway’s $26.5 billion acquisition of Burlington Northern Santa Fe railroad in 2009 in the past five years, according to data compiled by Bloomberg.

“Lubrizol is exactly the sort of company with which we love to partner — the global leader in several market applications run by a talented chief executive officer, James Hambrick,” Buffett said in today’s statement.

Berkshire, which has a market value of $209 billion and employed more than 260,000 people as of December 31, owns 10 insurers including Geico and more than 60 other companies ranging from food distributor McLane and clothing-maker Fruit of the Loom to toolmaker Iscar Metalworking.

Closing date
The companies said they expect the purchase to close in the third quarter. Lubrizol will operate as a subsidiary of Berkshire Hathaway and will remain based in Wickliffe (Ohio). Lubrizol had revenue of $1.32 billion in the fourth quarter and adjusted earnings per share in the period of $2.45, the company said last month.

Citigroup and Evercore Partners advised Lubrizol, while Munger, Tolles & Olson represented Berkshire Hathaway.