Berkshire Hathaway (BRKA/BRKB) has agreed to purchase specialty chemicals company Lubrizol Corp. (LZ) in a $9.7 billion cash deal worth $135 per LZ share, the two companies said Monday. The price represents a 28% premium to Lubrizol’s closing stock price Friday of $105.44, and is also 18% above the stock’s all time high.
The transaction, which was unanimously approved by the board of directors of each company, includes about $700 million in net debt, making it one of the largest acquisitions in Berkshire Hathaway history.
In early trading, shares of Lubrizol spiked 27.05% to $133.96 Monday.
“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, James Hambrick,” said Buffett, Berkshire Hathaway’s chief executive officer, in a statement.
After the deal closes, Wickliffe, Ohio — based Lubrizol, which fits Bufett’s typical profile favored in his purchases — the co. has fairly predictable cash flows [ttm: $1.26 billion] and a high return on equity [ttm: 34.03]— will operate as a subsidiary of Berkshire Hathaway. It will continue to be led by its current management team.
Buffett had told his shareholders in his annual letter last month that he was actively pursuing acquisition targets so Berkshire could continue to grow.
“We’re prepared,” he wrote. “Our elephant gun has been reloaded, and my trigger finger is itchy.”
Berkshire Hathaway and Lubrizol expect the transaction to be completed during the third quarter of fiscal 2011.