Warren Buffett’s annual letter to Berkshire Hathaway shareholders is out this week. Normally, the annual letter of one of the most widely read documents in the business world. This year, given that Warren Buffett has been in the news so much recently with the Buffett Rule and all, it is probably being perused more closely than usual.
There is something for the chemical industry in the letter:
On September 16th we acquired Lubrizol, a worldwide producer of additives and other specialty chemicals. The company has had an outstanding record since James Hambrick became CEO in 2004, with pre-tax profits increasing from $147 million to $1,085 million. Lubrizol will have many opportunities for “bolt-on” acquisitions in the specialty chemical field. Indeed, we’ve already agreed to three, costing $493 million. James is a disciplined buyer and a superb operator. Charlie and I are eager to expand his managerial domain.
I wrote up a small story in C&EN based on this passage. The idea being that Lubrizol is on the hunt for more small acquisitions. My boss, assistant managing editor Mike McCoy, had an even more interesting interpretation of the line “eager to expand his managerial domain.”
Mike suggested that maybe “managerial domain” would extend to the whole of Berkshire Hathaway. In other words, perhaps Buffett has Hambrick in mind as a successor.
I snickered at first. It seems like a crazy idea because it would have Buffett giving the keys to the kingdom to someone who has only been with the company since September. And Hambrick would go, in relatively short order, from running a mid-sized specialty chemical maker to heading all of Berkshire-friggin’-Hathaway.
BUT…Mike isn’t the only one to so speculate. This well-reasoned article by Harry Wallop in the Telegraph puts Hambrick as one of four possible candidates along with BNSF CEO Matthew Rose, reinsurance chief Ajit Jain, and Geico boss Tony Nicely.
The “eager to expand his managerial domain” appears in paragraph following the revelation that he has come up with an unnamed successor and two backup candidates. Why was James Hambrick the next thought to come to mind?
The phrase “eager to expand his managerial domain” is a cutesy way of hinting at a successor. Warren Buffett is fully capable of cute. Here he is playing the ukulele on television.
Another line from the letter that I would like to overanalyze is this: “James is a disciplined buyer and a superb operator.”
That is an enormous compliment coming from Warren Buffett. Picking stocks and buying companies is what Warren Buffett does. Go to any business section of any book store and you’ll oodles of books on Buffett’s methods. (One in this genre, The Intelligent Investor by Buffett’s mentor Ben Graham, is essential business reading.) Buffett calling Hambrick a disciplined buyer is kind of like John Elway saying “nice pass” to a kid tossing a football around on the beach.
Lubrizol’s track record of acquisitions is pretty good. The Noveon acquisition back in 2004 diversified the company away from lubes and additives. A couple of years ago it did lose a bidding war to BASF for Cognis. Backing off might have taken some discipline.
Another interesting deal was its purchase of Dow’s thermoplastic polyurethanes business for $61.4 million at the end of 2008. The business generated $74 million in revenues in 2008. The deal occurred right when Dow’s JV with PIC of Kuwait broke up and the company was left struggling to finance its purchase of Rohm and Haas.
Last year I was talking about that period in Dow’s history with Dow CEO Andrew Liveris. “One of the assets, I won’t tell you which one, I think we sold in a rush,” he said. “It was a small sale so it didn’t matter.” I suspect, but obviously don’t know, that he meant the thermoplastic polyurethanes unit. If that is the case, I wonder if Buffett, who holds billions of dollars worth of Dow preferred stock, noticed.
Let’s not forget that Buffett isn’t planning to step down while he is still able to function and wow us with mean uke solos. He’ll have plenty of time to groom a successor.
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