Berkshire Hathaway Inc. (BRK.A) (BRK.B) has announced that it will close the acquisition of Lubrizol on Friday, 16th September 2011. This was followed by the receipt of notification by the Ministry of Commerce of the People’s Republic of China.
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. The closure will mark the timely execution of the deal, which was originally announced in first-quarter 2011.
According to the definitive agreement reached by both the companies, Warren Buffett the chairman of Berkshire Hathaway will acquire 100% of outstanding Lubrizol shares for $135 per share in an all-cash transaction, which would cost around $9.7 billion, including approximately $0.7 billion in net debt.
At the time Buffett entered into the agreement with Lubrizol, he was so optimistic about the company that he was ready to pay a premium of 28% over Lubrizol’s closing price on Friday, March 11, 2011.
Post acquisition, the acquiring company will be led by current management and would continue with its headquarters at Wickliffe, Ohio. Buffett has always managed Berkshire’s diverse range of 80 business units in such a way that operating decisions for the various businesses are made by managers of the respective business units.
Berkshire is a conglomerate with a collection of almost 80 businesses ranging from insurance to ice cream. With a huge amount of cash ($38.2 billion of cash at the end of FY10) in his kitty, Buffett is seeking further acquisitions. The cash position of the company is further expected to grow as earnings and investments mature.
Buffett did 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. As a result, the company’s net worth has thus increased from $48 million to $157 billion during the past four decades.
In February 2010, Buffett acquired Burlington Northern Santa Fe Corporation (“BNSF”), one of the largest railroad systems in North America for $26.5 billion. The acquisition was a success as the business added $2.5 billion in net earnings in 2010.
Earlier during this week Berkshire Hathaway announced the appointment of a 50 year old hedge fund manager Ted Weschler, who will join Omaha, Nebraska-based Berkshire sometime early next year. Late last year, Buffett appointed one more hedge fund manager Tedd Combs.
After Buffett, both of them together will take care of the company’s equity and debt portfolio. The company announced that if required an additional investment manager can also be appointed.
These moves by Buffett point to his succession planning program. Buffet is quietly chalking out positions and role after his resignation. Though presently Buffet is the Chairman of Berkshire Hathaway and takes all the investment decisions solely, he is considering to split his job into three roles –CEO, Chairman and Investment Manager.
There has been an uncertainty as to who will lead the company after Buffett, rumors have been that the incumbent will be from within the company. Buffet has four names from within the organization on his succession list, but the names have not yet been disclosed.
The remarkable success of the company is nearly wholly attributable to Warren Buffett and many believe that it is statistically unlikely that any new management of this behemoth conglomerate will be able to continue Buffett’s long-term market out performance.
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