Observations About Berkshire/Lubrizol

Berkshire Hathaway is buying C&EN’s 2009 Company of the Year. C&EN has a Latest News with the main details. Here are a few observations: 1) It doesn’t seem like the most expensive deal in the world. In fact, it seems like Buffett is comfortably in value territory with this one. Berkshire is getting the company for just under 13x earnings, including Lubrizol’s net debt, and less than 9X EBITDA. 2) The value doesn’t seem to imply that there was a bidding war for the company. Perhaps that makes sense. Lubrizol is a great company, but it is mostly in lubricants. That business, wedded largely to the future of the internal combustion engine, might not capture the minds of the large chemical firms that seek to diversify. 3) Word about the impending acquisition seems to have gotten out before the official announcement. 4) Buffett hinted that a big acquisition was in the works a couple of weeks ago with his annual letter to shareholders. In it, he said, “Our elephant gun has been reloaded, and my trigger finger is itchy.” Good metaphor, BTW. Way better than “loaded for quail”, an expression which never really made sense to me. Though, calling Lubrizol an elephant by Berkshire standards is stretching it a bit. It is more like an elk or something. 5) Berkshire helped Dow buy Rohm and Haas. Lubrizol kind of reminds me of Rohm and Haas, even though both companies mostly serve different sectors. Both are specialty firms that have the winds at their backs, perhaps for different reasons. Rohm and Haas was a bit more focused on technology. Lubrizol strength is being well managed. 6) Buffett thinks so, too. “Just keep doing for us what you have done so successfully for your shareholders,” he said to James Hambrick in the release. I’ve got a lump in my throat. Seriously, though, it is quite an endorsement. 7)  Hambrick has his accomplishments. The company came out of the downturn with strong earnings. He oversaw the acquisition and successful integration of Noveon, which helped diversify the company away from lubricants. This in an industry where large acquisitions towards such aims all too often are the parasites that consume the host.

Author: Alex Tullo

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