13:54 PM | January 13, 2014 | —Francinia Protti-Alvarez
Berkshire Hathaway has agreed to acquire the pipeline flow-improver chemicals business of Phillips 66, Phillips Specialty Products Inc. (PSPI), for roughly $1 billion. The business manufactures drag-reducing agents, long-chain hydrocarbon polymers that act as buffers along pipe walls that decrease the amount of energy lost in turbulent formation. Conoco developed the technology 30 years ago, and Phillips 66 inherited the business when it was spun off from ConocoPhillips in 2011.
PSPI has a manufacturing plant at Bryan, TX, which employs 140 people. The company also has management and sales offices at Houston, Brussels, and Moscow. The R&D facilities are located at Ponca City, OK. Berkshire says that James Hambrick, CEO of Lubrizol, will oversee the acquired business. Production capacities and sales figures have not been disclosed.
Phillips 66 will receive about 19 million shares of Phillips 66 common stock currently held by Berkshire Hathaway currently valued at $1.45 billion, according to a Phillips 66 regulatory filing. “This transaction will enable Phillips 66 to further optimize our portfolio and focus on growing our midstream and chemicals businesses,” Phillips 66 says. The company says it expects the businesses balance sheet at closing to include approximately $450 million of cash and cash equivalents, putting the enterprise value of the deal at roughly $1 billion.
“The flow improver business is a high-quality business with consistently strong financial performance, and it will fit well within Berkshire Hathaway,” says Warren Buffett, chairman and CEO of Berkshire Hathaway. Lubrizol, a leading producer of lubricants and specialty chemicals, was acquired by Berkshire in 2011 for about $9.7 billion. Berkshire’s current chemical operations include Benjamin Moore, a leading US manufacturer and marketer of architectural paints; and Shaw Industries, a producer of nylon, polyester, and polypropylene carpet. Berkshire also owns preferred shares in Dow Chemical that are convertible under certain conditions to a 6.4% stake in the company.
“Berkshire Hathaway made a strong offer for our high-performing flow improver business,” says Greg Garland, chairman and CEO of Phillips 66. “This transaction optimizes our portfolio and focuses growth on our midstream and chemicals businesses.” Phillips 66 chemical assets include a 50% stake in Chevron Phillips Chemical as well as a wholly owned polypropylene unit at its Bayway, NJ, refinery.
Berkshire held more than 27 million shares in Phillips 66 at the end of September 2013, according to a regulatory filing. Following the transaction, Berkshire Hathaway will cut its holdings in Phillips 66 from 4.5% to an anticipated 1.3% based on Berkshire’s reported holdings as of 30 September 2013.
The transaction is expected to close in the first half of 2014, following regulatory review.