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Berkshire to Acquire Lubrizol

by Tracey Ryniec

March 14, 2011 | Comments : 0 Recommended this article: (0)

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Berkshire Hathaway announced today that it was buying Lubrizol (LZ) in an all cash deal valued at $9 billion.

The offer is for $135 a share, an all-time high for the stock and a 28% premium on Friday's close of $105.44.

Lubrizol shareholders will get the cash, NOT shares of Berkshire Hathaway. The deal is expected to close in the third quarter of 2011. As has occurred with Buffett's previous deals, current management will stay on to run the company.

Fundamentals Are Solid

It's not surprising that Buffett swooped in on Lubrizol. Valuations have always been good. Shares are currently trading at just 9x forward earnings.

Lubrizol has a stellar return on equity (ROE) of 32.2%, well above the S&P 500 at 23.5% and its peers at just 14.1%.

Earnings growth has slowed now that the global recovery is further along in the cycle, but Lubrizol is still expected to grow earnings at 7.8% in 2011 and 9% in 2012.

You can see the steady growing of the earnings over the last few years, along with the share price, in the 5 year price and consensus chart.

Lubrizol's Been a Great Holding

We've liked Lubrizol for several years. It has been in the Focus List several times, most recently added on August 12, 2010 at the price of $91.53.

With the offer, we have a 46% gain in the shares.

Lubrizol is currently a Zacks #3 Rank (hold) stock.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service. You can follow her at twitter.com/traceyryniec.

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