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Berkshire Hathaway buys up Lubrizol for $9.7 billion in cash

Warren Buffett's Berkshire Hathaway has spent $9.7 billion in cash to acquire Lubrizol Corp. in one of the investment funds' largest deals ever. Paying $135/share, Berkshire Hathaway priced Lubrizol's stock at a 28% premium over its March 11 closing price, with the purchase price 18% higher than Lubrizol's all-time highest-ever close.

Buffett called Lubrizol "exactly the sort of company with which we love to partner" on the basis that it's a global leader in several applications and has a "talented" CEO, James Hambrick. "Our only instruction to James—just keep doing for us what you have done so successfully for your shareholders," Buffett said in a statement.

Berkshire Hathaway and Lubrizol expect the deal to finalize in the third quarter, following Lubrizol shareholder approval and customary closing conditions, including antitrust approval, which would be expected given Berkshire Hathaway's current portfolio, which currently lacks a chemical company.

Lubrizol will operate as a subsidiary of Berkshire Hathaway and remain located at its Wickliffe, OH, headquarters with its current management team staying in place. In addition to transportation-related fluids and industrial lubricants and fuel additives, Lubrizol makes plastics (thermoplastic polyurethanes), coatings, and ingredients and additives for personal care products and pharmaceuticals. The company has 6900 employees and manufacturing facilities spread among 17 countries, with 2010 revenues of $5.4 billion.

A strong 2010
For the full year 2010, Lubrizol's consolidated revenues were up 18% to $5.42 billion from $4.59 billion in 2009. The company divides itself into two segments: Additives and Advanced Materials, which includes its plastics operations, with additives making up the lion's share of revenue and income.

For all of 2010, Additives brought in $3.884 billion, with Advanced Materials generating $1.533 billion. In terms of operating income, Additives registered $971.2 million for the final quarter of 2010, while Advanced Materials tallied $227.5 million. Both increased over 2009, with Additive income rising to $183.4 million (+23.2%), while advanced materials growth was even stronger at $58.8 million (+34.8%).  

On January 26, Lubrizol acquired specialty polymers and formulation additives maker Nalco Performance Products Group, the personal care business of Nalco Co., a global leader in sustainability services focused on industrial water, energy and air applications. At the time, Lubrizol noted that the acquisition expanded its Noveon consumer specialties product line within the company's Advanced Materials segment.

From its founding in 1965 through 2010, Berkshire Hathaway has outperformed the S&P 500 by 10.8% in terms of compounded annual gain, with its stock rising from a book value of $19/share to $95,453/share, according to its 2010 annual statement. On a per share basis, that's a 490,409% gain from the 1965 value, compared to a 6292% gain for the S&P 500 over the same period. 

The company is expected to continue with acquisitions. It finished 2010 with $34.767 billion in cash and cash equivalents. It currently splits its portfolio companies into: insurance (underwriting and investment income); railroads; utilities and energy; manufacturing, service, and retailing; and finance and financial products. —PlasticsToday Staff

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