Berkshire Hathaway Inc. (BRK.A) (BRK.B) has completed the timely acquisition of The Lubrizol Corp., a chemical company headquartered in Ohio. The acquisition will cost the company $9.7 billion, at $135 per share. The purchase consideration includes $0.7 billion of the acquired company’s debt.
Post-acquisition, Berkshire will continue with its headquarters at Wickliffe, Ohio, and will be led by the current management. CEO Warren Buffett has always managed Berkshire’s diverse range of 80 businesses in a manner that requires operating decisions for the various businesses to be made by managers of the respective business units.
Lucrative Lubrizol
Lubrizol is a company which perfectly meets all the criteria that Buffett looks for in an acquisition. It particularly appeared attractive to him because of its consistent long-term earnings growth, a diverse product range and solid management. It had grown its revenue per share at 9.82% for the past ten years.
Lubrizol is a specialty chemicals company, which sells more than 12,000 products in over 100 countries. Its products are used in a broad range of applications, with multiple end-uses such as engine oils, specialty driveline lubricants and metalworking fluids, as well as personal care and over-the-counter pharmaceutical products and performance coatings and inks.
It is believed that demand for the company’s products will keep on increasing as environmental cautiousness will lead to greater demand for cleaner burning transportation fuels.
Lubrizol also boasts of solid management under CEO, James L. Hambrick who has been with the company since 1978. He has played a major role in the company’s mergers and acquisitions and developing international business in emerging markets.
Given Lubrizol’s sound operating fundamentals it is believed that the acquisition will soon be accretive to earnings.
More Acquisitions Ahead
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. The company’s net worth has thus increased from $48 million to $163 billion during the past four decades.
Buffett is known for cherry-picking solid businesses. This has helped him build a conglomerate, which now houses over 80 different businesses. Last year during February 2010, he acquired the railroad company Burlington Northern Santa Fe Corp. for $26.5 billion.
The acquisition turned to be hugely successful as the company witnessed a major contribution to earnings. Berkshire did not make any significant business acquisitions in 2009 and acquired a number of small businesses in 2008 for a total of $6.1 billion.
In June 2011, Berkshire acquired the noncontrolling interests in Wesco Financial Corporation for $543 million, thereby making it an indirect wholly-owned subsidiary of Berkshire.
With $47.9 billion of cash in the kitty as of the end of June 30, 2011, we expect some more shopping from Buffett in the near term.
Other Investments
Apart from acquiring companies, Berkshire also holds major equity investments in companies such as The Goldman Sachs Group, Inc. (GS), General Electric Company (GE), William Wrigley Jr. Company, and The Dow Chemical Company (DOW). Last week, however, General Electric said that it is considering redeeming $3.3 billion worth of preferred shares bought by Berkshire in October 2008, during the height of the financial crisis.
BERKSHIRE HTH-A (BRK.A): Free Stock Analysis Report
BERKSHIRE HTH-B (BRK.B): Free Stock Analysis Report
DOW CHEMICAL (DOW): Free Stock Analysis Report
GENL ELECTRIC (GE): Free Stock Analysis Report
GOLDMAN SACHS (GS): Free Stock Analysis Report
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment