Deal-hungry veteran investor buys Lubrizol, which makes engine oil additives, telling its chief executive to 'just keep doing what you've been doing'

This article is more than 9 years old

This article is more than 9 years old

Warren Buffett has made one of his largest acquisitions ever, agreeing to buy chemical and lubricants company Lubrizol in a deal worth $9.7bn (£6bn).

Berkshire Hathaway, Buffett's insurance-to-railways conglomerate, announced the purchase on Monday – barely two weeks after the 80-year-old investment guru had hinted that he was hungry to make more deals.

Lubrizol, based in Ohio, makes additives for engine oils and industrial lubricants. Berkshire will pay $135 a share in cash for the company, a 28% premium on its closing price on Friday.

"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, James Hambrick," said Buffett. "Our only instruction to James – just keep doing for us what you have done so successfully for your shareholders."

Buffett made his reputation, and his huge fortune, through shrewd investments in well-run companies whose products and services are likely to be in demand in the future. He made his biggest deal in November 2009, buying US rail operator Burlington Northern Santa Fe for $26bn.

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

"It's certainly a full price – especially if you think what the opportunity could have been had they bought at the bottom of 2008 or 2009's market sell-off," said Thomas Russo, of investment fund Gardner Russo & Gardner. "But it's all about the forward-looking returns and I suspect that the rest of the world's demand for the products will grow."

In his annual letter to Berkshire shareholders last month, Buffett predicted that "major" acquisitions were on the cards. "Our elephant gun has been reloaded, and my trigger finger is itchy," he said.

Before today's deal, Berkshire Hathaway had a cash pile of about $38bn.

Andy Kilpatrick, Buffett's biographer, said he thought Lubrizol would be a good fit. "He's paying a reasonable premium, and he's getting an entire business with a brand name," said Kilpatrick, a stockbroker who turned author to write Of Permanent Value, the Story of Warren Buffett.

Berkshire, which is based in Omaha, Nebraska, owns about 80 subsidiaries, including insurance, clothing, utility, furniture, jewellery and corporate jet companies. It also has major investments in such companies as Coca-Cola, The Washington Post and Wells Fargo.