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Berkshire agrees $9b deal to buy Lubrizol

NEW YORK (Reuters) - Billionaire Warren Buffett's Berkshire Hathaway Inc struck a deal to buy lubricant maker Lubrizol Corp for $9 billion in a bet on industrial growth in emerging economies.

The deal is Berkshire's biggest since it bought Burlington Northern Santa Fe for more than $26 billion in late 2009. It extends the trend of Berkshire expanding in basic industries, which includes Buffett's recent deals for conglomerate Marmon Holdings and Israel's Iscar Metalworking.

Berkshire, which had amassed about $38 billion of cash by the end of last year, will acquire Lubrizol for $135 per share, about a 28 percent premium to its closing price on Friday. Berkshire will also assume about $700 million of Lubrizol's debt.

Lubrizol stock soared more than 27 percent to $134.15 in afternoon trading, while NewMarket, one of the chemical company's closest competitors, was up nearly 12 percent.

With the Lubrizol deal, Berkshire appears to be looking outside North America, in contrast to many of its recent acquisitions, which have focused on an expected economic revival in the United States.

Lubrizol makes lubricants for engines, especially large trucks, buses and boats. Demand for the company's products should continue to rise as shipping of goods increases around the world.

About 72 percent of Lubrizol's revenue came from its petroleum additives business last year, and about 65 percent of the company's sales were from outside North America.

“Basically all your growth in petroleum additives is going to come from emerging markets,” said Davenport Research analyst Todd Vencil. “The US is growing maybe one or two percent a year in the industry. Europe is stagnant. So you really are looking to China and India and places like that.”

In February, the company posted a strong quarterly profit and issued a bullish forecast for 2011, signalling that demand for lubricants was improving along with the economy.

“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,” Buffett said in a statement yesterday.

The current management team under James Hambrick will continue to lead Lubrizol, the companies said.

Just two weeks ago, Buffett told Berkshire shareholders that he was searching for new acquisitions. “Our elephant gun has been reloaded, and my trigger finger is itchy,” the 80-year-old investor wrote in his annual letter.

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Published March 15, 2011 at 10:43 am (Updated March 15, 2011 at 10:43 am)

Berkshire agrees $9b deal to buy Lubrizol

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