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Buffett bets on global economic recovery with $9bn Lubrizol deal

Michael Erman

Published 15/03/2011 | 05:00

President Barack Obama awards the Presidential Medal of Freedom to Warren Buffett, chairman and chief executive officer of Berkshire Hathaway, at a recent award ceremony in the White House for people who 'reveal the best of who we are and who we aspire to be'
President Barack Obama awards the Presidential Medal of Freedom to Warren Buffett, chairman and chief executive officer of Berkshire Hathaway, at a recent award ceremony in the White House for people who 'reveal the best of who we are and who we aspire to be'

Billionaire Warren Buffett's Berkshire Hathaway has struck a deal to buy lubricants maker Lubrizol for $9bn (€6.4bn), betting on a global economic recovery.

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The deal is Berkshire's biggest since it bought Burlington Northern Santa Fe for more than $26bn in late 2009.

It extends the trend of Berkshire expanding in basic industries, which includes Mr Buffett's recent deals for Marmon Holdings and Israel's Iscar Metalworking.

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

Lubrizol's shares soared more than 27pc to $133.95 yesterday.

Shares of NewMarket, one of the chemical company's closest competitors, were up 12pc.

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, the company posted a strong quarterly profit and issued a bullish forecast for 2011, signalling that demand for lubricants was improving along with the economy.

About 65pc of the company's sales were from outside North America last year.

"Lubrizol is exactly the sort of company with which we love to partner -- the global leader in several market applications run by a talented CEO," Mr Buffett said.

Acquisitions

The firm would continue to be led by its current management team under James Hambrick, the companies said.

Just two weeks ago, Mr Buffett told Berkshire shareholders he was searching for new acquisitions. "Our elephant gun has been reloaded, and my trigger finger is itchy," the 80-year-old said.

Thomas Russo, who helps invest more than $3bn at Gardner Russo & Gardner, said he believed the investment was positioned to take advantage of increasing demand for Lubrizol's products as emerging economies around the world industrialise further.

Some 11pc of Gardner Russo & Gardner holdings are invested in Berkshire shares.

"It's certainly a full price," Mr 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."

Mark Gulley, a chemicals analyst for Soleil Securities who does not cover Lubrizol, said he believed that in paying about 12 times expected 2011 earnings, Mr Buffett was getting a relative bargain.

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

Irish Independent

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