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General Investing

Latest Acquisition Target in the Specialty Chemicals Industry: The Lubrizol Corp. (LZ)

March 23, 2011

The specialty chemicals space continues its favorable run that began in 2010, with strong end-market demand despite commodity cost headwinds. Improved portfolios and leaner balance sheets make some specialty chemicals companies ripe for acquisitions, says Credit Suisse Managing Director John McNulty.

The most recent evidence is Berkshire Hathaway’s (BRK-A) March 14 announcement to acquire The Lubrizol Corp. (LZ) for $135 per share in an all-cash transaction. The specialty chemicals company, which produces technologies for the transportation, industrial and consumer markets worldwide, will be acquired at a value of approximately $9.7 billion — one of Berkshire Hathaway‘s largest acquisitions ever — a 28% premium over Lubrizol‘s March 11 closing price.

Lubrizol gained an increase in earnings power over the past several years, benefiting from consolidation in the specialty chemicals industry, said Senior Research Analyst Dmitry Silversteyn in a June 2010 interview with The Wall Street Transcript. Silversteyn correctly forecasted a target price in the $130 range for Lubrizol, up from June 2010′s stock price in the $80-$85 range.

The analyst sees the expansive opportunities in specialty chemicals as appealing to many types of investors.

“There are investments here for every type of investor, both in terms of cap consideration as well as in terms of value, growth at reasonable price, or just outright growth. I think this is a volatile enough industry for short-term traders,” Silversteyn said in a March 2011 interview with TWST. “It also has evolving stories that will take some time to work where the market is still skeptical as to their ultimate success, which are suitable for value investors. I think if you have a theme and a style, there are stocks in my universe that would fit that.”

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