Today, with the announcement to acquire Lubizol, Warren Buffett, the Chairman of Berkshire Hathaway Inc. (BRK.A) (BRK.B) has materialized his desire to add another company to its conglomerate. During the fourth quarter 2010 earnings release, he said that he had got some money to spend on acquisitions.
According to the definitive agreement reached by both the companies, Buffett will acquire 100% of outstanding Lubrizol shares for $135 per share in an all-cash transaction. The deal, which is expected to close during third quarter 2011, will cost around $9.7 billion, including approximately $0.7 billion in net debt.
Buffett is so optimistic about Lubrizol that he is ready to pay a premium of 28% over Lubrizol’s closing price on Friday, March 11, 2011. Post acquisition, the acquiring company will continue with its headquarters at Wickliffe, Ohio, and will be led by current management.
Post acquisition, the acquiring company will continue to be headquartered at Wickliffe, Ohio and be led by its current management. This is again a continuation of the Buffett’s unique way of management, wherein he has always allowed the operating decisions for the various businesses to be made by the respective managers.
Lubrizol is a specialty chemical company that makes chemicals for pharmaceutical companies, fuel additives for gasoline and diesel, and other ingredients for the transportation sector.
With $38.2 billion of cash at the end of FY10 in its kitty, Buffett is seeking acquisitions. The cash position of the company is further expected to grow as earnings and investments mature.
Buffett has not spent a dime of cash for dividends or share repurchases during the past 40 years. Instead, he has retained all of Berkshire’s earnings to strengthen the business, a reinforcement now running about $1 billion per month. The company’s net worth has thus increased from $48 million to $157 billion during the past four decades.
Last year February, Buffett acquired Burlington Northern Santa Fe Corporation (“BNSF”), one of the largest railroad systems in North America for a whopping $26.5 billion. The acquisition was a success as the business added $2.5 billion in net earnings in 2010.
Berkshire Hathaway, an Omaha, Nebraska-based holding company, owns 80 operating units ranging from insurance, rail roads, utilities, manufacturing services, retail and home building. The company has four major operating sectors – Insurance, Regulated Utility Business, Manufacturing, Service & Retailing Operations and Finance & Financial Products.
Berkshire also has stock investments in American Express Co., BYD Co., Coca-Cola Co., ConocoPhilips, Johnson & Johnson, Kraft Foods Inc., POSCO, The Procter & Gamble Co., Sanofi-Aventis, Tesco plc., U.S. Bancorp, Wal-Mart Stores Inc. and Wells Fargo Co.
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