This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Berkshire's Lubrizol Buy: What's Behind It?

Stocks in this article: LZ BRK.A

NEW YORK ( TheStreet) -- The engine-lube business looks bright, according to Warren Buffett's most-recent deal, a $9.7 billion acquisition of specialty chemicals manufacturer Lubrizol (LZ).

Announced before the bell Monday, the deal news sent shares of Lubrizol spiking by nearly 30%.

Buffett

Buffett's Berkshire Hathaway (BRK) holding company has been looking to put its $40 billion cash treasury to work, rather than letting it sit there rotting in our near-zilch-interest-rate environment. In the annual letter that Berkshire sends to shareholders every year, released at the end of February, the Oracle of Omaha said his "trigger finger is itchy" when it came to doing a deal.

Lubrizol, then, would appear to have met all of Buffet's buyout criteria, a list he proffered in this year's letter to holders.

Those included "at least $75 million of pre-tax earnings," "demonstrated consistent earning power," "businesses earning good returns on equity while employing little or no debt," and "simple businesses (if there's lots of technology, we won't understand it)."

Founded in 1928, Lubrizol purports to have invented the engine-oil additives business more than 80 years ago. As its name suggests, the company, based in Wickliffe, Ohio, makes chemicals that go into lubricants used in everything from car engines to metalworking gear -- chemicals designed to improve the fuel economy and the combustion abilities of those engines, among other things.

Lubrizol turned over $5.4 billion in revenue in 2010, and generated cash flow from operations of nearly $690 million. In 2009 and 2008, the company's operating cash flow came to $951 million and $223 million, respectively. The company attributed the see-saw results between 2008 and 2010 to big reductions in inventories and raw-materials costs as Lubrizol looked to contend with the recession. The moves boosted profit margins.

Lubrizol also claims to have the world's largest market share in the lubricant-additives business, beating out such behemoth rivals as Infineum, a joint venture between ExxonMobil (XOM) and Shell Oil, not to mention Chevron's (CVX) Oronite unit.

Another competitor is the Afton Chemical subsidiary of NewMarket Corp. (NEU), the closely held Richmond, Va., company that also develops real estate. NewMarket shares, which are thinly traded, popped nearly 13% Monday to about $147. By midday, volume surpassed 200,000 shares, quadruple the daily average.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 18,030.21 +6.04 0.03%
S&P 500 2,081.88 -0.29 -0.01%
NASDAQ 4,773.4720 +8.0480 0.17%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs