Buffett-spotting is practically a cottage industry in the financial media, as is predicting the next thing that the Berkshire Hathaway (NYSE:BRK.A) CEO is going to buy. These predictions tend to be consistently off the mark, though, and so there is almost always an element of surprise to Buffett's next buy. So too was it with Monday's announcement that Berkshire Hathaway would acquire Lubrizol (NYSE:LZ) - while the deal makes a great deal of sense, precious few people were publicly predicting this one. (Check out some of Buffett's other surprise picks in 4 Lesser-Known Companies Buffett Owns.)
Berkshire Hathaway Buys Lubrizol
Buffett is striking the kind of deal here that he prefers - an all-cash transaction for 100% control. Berkshire Hathaway will be paying $135 per share in cash for all of Lubrizol's outstanding shares. Including Lubrizol's net debt, this is a $9.7 billion transaction for Berkshire Hathaway - and a 28% premium for Lubrizol shareholders. All in all, shareholders who bought or held Lubrizol through the worst of the recession have seen these shares come back more than fives times over since early 2009.
What Berkshire Hathaway Is Getting
Lubrizol is a chemical company, but it is not so much a commodity player like Huntsman (NYSE:HUN) or Westlake (NYSE:WLK). Instead, Lubrizol focuses on additives and advanced materials. Lubrizol has a leading share in additives for products like motor oil, gear oils and transmission fluids, as well as significant businesses in engineered polymers, performance coatings, and so on.
Although many chemical companies struggle to attain a double-digit return on equity, let alone maintain it, Lubrizol has done quite well by this metric. Likewise, although Lubrizol was not immune to the effects of the recession, the company has shown a relatively uncommon ability to deliver consistent revenue growth compared to other chemical companies. (For more, see How Return On Equity Can Help You Find Profitable Stocks.)
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