Buffett bags Lubrizol chemicals firm for $9bn
Tuesday 15 March 2011
Just two weeks after telling his shareholders he had "reloaded" his "elephant gun" and was on the hunt for acquisitions, Warren Buffett's Berkshire Hathaway bagged one of the biggest takeovers in its history – a $9bn (£6bn) purchase of the industrial lubricants giant Lubrizol.
The deal, which also sees Berkshire Hathaway take on $700m debt, further shifts Mr Buffett's company away from its traditional focus on insurance businesses and into basic industries. It comes on top of deals such as the acquisition of the railroads company Burlington Northern and purchases of large metalworking and manufacturing businesses.
"Lubrizol is exactly the sort of company with which we love to partner," said Mr Buffett, "the global leader in several market applications run by a talented chief executive, James Hambrick. Our only instruction to James – just keep doing for us what you have done so successfully for your shareholders."
Lubrizol is based in Ohio and employs 6,900 staff worldwide, making products that range from additives for engine oils to ingredients for shampoo. It was founded in 1928 and has annual sales of $5.4bn. Berkshire Hathaway 's takeover is pitched at a 28 per cent premium to last week's Lubrizol share price.
Thomas Russo, a fund manager at Gardner Russo & Gardner and a Berkshire shareholder, said: "It's certainly a full price – especially if you think back to what the opportunity could have been had they bought at the bottom of 2008 or 2009's market sell-off, 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."
Mr Buffett routinely warns Berkshire Hathaway shareholders that the company will find it harder to achieve the stellar growth of its earlier years, now that it has become one of the top 10 biggest companies in the US, vying with General Electric for title of largest conglomerate.
In his annual letter to shareholders two weeks ago, he wrote: "I hope that the per-share earnings of our non-insurance businesses continue to increase at a decent rate. But the job gets tougher as the numbers get larger. We will need both good performance from our current businesses and more major acquisitions. We're prepared. Our elephant gun has been reloaded, and my trigger finger is itchy."
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