The "big elephant" in Buffett's mind has finally appeared. On the local time of the 14th, Buffett's investment flagship Berkshire Hathaway announced that it would acquire the chemical giant Lubrizol Corporation of the United States for $9.7 billion in cash. This is also one of the largest acquisitions made by Berkshire in recent years.
Regarding this deal, Buffett spared no expense. It was revealed that from the initial contact to the completion of the transaction, both parties only took a few weeks, and Buffett's offer was 28% higher than Lubrizol's closing price on Friday last week.
"The big elephant" finally appeared
In the annual shareholder letter released not long ago, Buffett disclosed that he was ready to "make more major acquisitions." As of the end of 2010, Berkshire Hathaway's book value reached $157.3 billion, while its holdings of cash and cash equivalents totaled $38 billion, the highest level in three years.
With so many "bullets" in hand, Buffett said in the letter to shareholders accompanying the Berkshire annual report: "We are ready, the elephant gun has been reloaded, and my trigger finger is itching."
However, according to Buffett's subsequent disclosure, despite his strong interest in acquisitions, he had not yet discovered any potential acquisition targets with significant possibilities. Even when Buffett admitted that a potential target he recently found was "snatched away," at best, the company was just a "zebra," far from the "big elephant" level that he valued.
Now it seems that Buffett's "big elephant" has clearly surfaced. On the 14th, Berkshire Hathaway announced that it would spend approximately $9.7 billion to acquire the U.S.-based Lubrizol Corporation, which is the world's largest producer of lubricant additives.
According to the announcement, Berkshire will offer $135 in cash per share to acquire Lubrizol Corporation headquartered in Wickliffe, Ohio. The offer also includes assuming approximately $700 million of Lubrizol's net debt.
"Lubrizol is exactly the type of company we want to partner with," Buffett said in an electronic statement on the 14th, "Lubrizol is a leader in multiple global niche markets, and its CEO James Hambrick is an excellent leader."
Analysts believe that according to Buffett's standards, Lubrizol is precisely the kind of company he favors. The company has stable and predictable cash flows, and a high return on investment. Buffett's current offer is equivalent to only 7.6 times Lubrizol's earnings before interest and taxes.
The deal was completed in just a few weeks
It was introduced that Buffett's offer was 28% higher than Lubrizol's closing price on Friday last week, and even 18% higher than the company's historical highest stock price, showing Buffett's determination to acquire the company.
Insiders revealed that Buffett's initial contact with Lubrizol Corporation was only a few weeks ago, but the two parties quickly reached an acquisition agreement. This is also one of the largest mergers and acquisitions conducted by Berkshire to date. Bloomberg Intelligence statistics show that this is Buffett's second-largest acquisition in the past five years, only surpassed by the $26.5 billion acquisition of the second-largest U.S. railway company, BNSF Railway, in 2009.
Berkshire also stated in its announcement on the 14th that the acquisition of Lubrizol Corporation is one of the largest acquisitions in the company's history.
According to reports, the boards of directors of both companies have approved the above merger terms. Next, the deal still needs the approval of Lubrizol's shareholders and the clearance of antitrust regulatory authorities. Both companies expressed their hope to complete the transaction as early as the third quarter of this year. After the transaction is completed, Lubrizol will continue to operate in Ohio as one of Berkshire's subsidiaries.
As Buffett's flagship enterprise, Berkshire currently has a market value of $209 billion and employs more than 260,000 people. The group currently owns 10 insurance companies, including GEICO, and more than 60 other types of enterprises, spanning industries such as food distribution, utilities, and tool manufacturing.
Following the economic recovery trend
Analysts said that from railway companies to the current chemical companies, Buffett's choice of acquisition targets may also reflect his judgment on the prospects of the U.S. and even the global economy to some extent.
At the end of last month, Buffett wrote in his annual letter to shareholders that he believed the "good days" for the U.S. were ahead, and the U.S. real estate market might start to recover from next year, which would help boost U.S. economic growth. He also said that uncertainty would always exist, but he hoped Americans would remain optimistic about the future.
Precisely because of his positive view on the overall economic environment, Buffett dared and actively sought larger merger and acquisition opportunities within the year. Buffett said he hoped to use the large amount of funds at his disposal this year to look for larger-scale M&A opportunities.
Take Lubrizol, which Buffett targeted this time, as an example; the company is one of the many industrial enterprises that obviously benefit from economic recovery. According to the announcement last month, Lubrizol's revenue surged in the fourth quarter of last year, reaching $1.32 billion, which boosted the company's profit by 17% for the quarter. The company also expressed optimism about the profit outlook for the current fiscal year.
According to the information on Lubrizol's Chinese official website, the output value of this multinational chemical giant last year was $5.4 billion, with a global workforce of 6,900 people.
It was introduced that Lubrizol's business mainly focuses on two areas: one is lubricant additives, including vehicle transmission system additives, industrial additives, and engine oil additives, whose products are mainly used to improve the performance of lubricating oils, helping to enhance engine performance, reduce emissions, extend engine life, and improve fuel economy; the other area is advanced specialty materials, polymer-based additives, and chemical additives, widely used in personal care products, industrial pipeline systems, paints, and medical tubing.