Weatherford Jettisons Units to Berkshire-backed Lubrizol for $825 Million

Weatherford International plc (WFT) agreed to sell its chemicals and drilling fluids businesses to Lubrizol Corp., a unit of billionaire Warren Buffett's Berkshire Hathaway Inc. (BRK.B) , for $825 million, helping it pay down more debt.

The price includes $750 million in cash and a $75 million earnout provision tied to the businesses' performance after the deal closes.

No investment bankers were involved in the sale, a source said.

Weatherford expects to close the transaction by the end of the year if it clears regulators.

Tudor, Pickering, Holt & Co. Securities Inc. wrote in its morning report that it's positive that Weatherford was able to jettison non-core businesses despite energy market turmoil, including sliding oil prices, helping it surpass its $7 billion to $7.5 billion net debt target by the end of this year. "[It] feels like WFT [is] getting good value on the sale," the firm said, noting that Weatherford's non-core portfolio generated $630 million in third quarter revenues with a slim 3% operating margin.

The sale didn't come as a surprise, as Switzerland-domiciled Weatherford mentioned on its third quarter earnings conference call that a non-core asset sale was imminent and that it was targeting $1 billion in asset sales this year. Weatherford is expected to sell another business by the end of the year or early next year, likely its testing and production services unit, Global Hunter Securities Inc. analysts Mark Brown and Matthew Zukowsky wrote in a report.

Simmons & Co. International said other businesses to be divested include Weatherford's wellhead business, which is expected next year, and the remnants of its land rigs business.

Weatherford has been trying to boost operations through layoffs and divestitures, including the sale of its Russian and Venezuelan land rig business to Rosneft Oil Co. in July for $500 million and its pipeline and specialty services business to Baker Hughes Inc. (BHI) in March for $250 million. Weatherford also joined Intervale Capital LLC in October in selling its stake in Scotland's offshore oil and gas services provider Proserv Group Inc. to Riverstone Holdings LLC for what was thought to be $750 million ($250 million to $350 million was expected to go to Weatherford).

Weatherford has been thought to be a takeover target given recent consolidation in the industry, including Halliburton Co.'s (HAL) announced purchase of Baker Hughes last month for $35 billion.

Weatherford chairman, CEO and president Bernard Duroc-Danner said in a statement that the asset sale brings Weatherford's realized cash divestiture proceeds to $1.8 billion this year and implies that its net debt will range between $6.6 billion to $6.8 billion at year-end.

"This is substantial progress," he said. "These divested businesses represent attractive growth platforms for Lubrizol, a technology-driven specialty chemicals company with strong leadership and innovation. The transaction provides Lubrizol the opportunity to leverage Weatherford's oilfield engineered chemistry and fluid expertise to the benefit of its clients."

In a separate statement, Wickliffe, Ohio-based Lubrizol said the addition of the two businesses provide it with a bigger footprint in the $20 billion oilfield chemicals business and applications experience and end-user relationships.

"This proposed acquisition provides us a new growth platform as we build out a multi-billion business in specialty chemicals and drilling fluids for the oilfield space," Lubrizol chairman and CEO James Hambrick said in a statement. "With the addition of the companies' technologies, combined with improved fluid formulation and applications knowledge, Lubrizol will be better positioned to innovate more quickly and become a solutions provider for both multinational oilfield service companies as well as more regional customers which have a significant share of the North American market."

Berkshire Hathaway bought Lubrizol in 2011 for $9 billion. Lubrizol went on to make several acquisitions, including a pipeline flow improver business from Phillips 66 Inc. (PSX) at the end of last year for $1.4 billion, Vesta Inc. from private equity firm RoundTable Healthcare Partners LP in August for an undisclosed sum and Warwick Chemicals Ltd. from Warwick International Group Ltd. last month, also for undisclosed terms.

The units Weatherford is selling include Engineered Chemistry, which is its oilfield chemicals business, and Integrity Industries, which is its drilling fluids business.

Houston-based Engineered Chemistry, which was put together through a series of acquisitions over the past 12 years, supplies additives and fluids for oilfield activities such as drilling, flow assurance and fracturing. It includes a manufacturing and research organization that supports a global field distribution network. It operates 10 sites mostly in North America.

Kingsville, Texas-based Integrity Industries makes drilling fluid systems, including diesel, mineral oil and synthetic oil-based fluids, supplying then to retail drilling fluid companies along with technical support. It's operated for 25 years and has 14 locations.

Engineered Chemistry and Integrity Industries, along with Lubrizol's energy and water business and Lubrizol Specialty Products Inc., will operate under a new segment called Lubrizol Oilfield Solutions, joining its other business segments Lubrizol Additives and Lubrizol Advanced Materials but continuing to operate independently.

Weatherford received legal counsel from Winston & Strawn LLP's Chris Ferazzi, Richard Wynne, Roger Lucas, Michael Falk, Richard Falek, May Wall, Ted Farrell, Adam Wilhite, Stephanie Sebor, Justin Trapp, Brad Ratliff and Garrett Johnston. Vinson & Elkins LLP's Shay Kuperman, Elizabeth Bellows, Igor Norinsky and Katherine Rollins represented Lubrizol.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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