Buffett in $1bn deal for oil flow business

Warren Buffett’s Berkshire Hathaway will pay almost $1bn to acquire a business whose products speed the flow of crude through oil pipelines.

Phillips 66, the refining, chemicals and pipelines business spun off last year fromConocoPhillips, said on Monday it had accepted Mr Buffett’s unsolicited offer for its flow improver division.

In an unusual move, Berkshire will pay for the deal not in cash or in Berkshire stock but by handing over around 19 million of the Phillips 66 shares that Mr Buffett holds in Berkshire’s investment portfolio.

Phillips 66 is in the middle of a $3bn share buyback and Mr Buffett holds more than 27 million of the company’s shares, which closed on Monday at $74.72.

“The flow improver business is a high-quality business with consistently strong financial performance, and it will fit well within Berkshire Hathaway,” Mr Buffett said. “I have long been impressed by the strength of the Phillips 66 business portfolio.”

The division, Phillips Specialty Products Inc, develops and manufactures polymers to maximise the flow potential of pipelines carrying crude oil, refined products or waste water. It employs 140 people, mainly in Texas, but including research and development staff in Oklahoma and a salesforce in Belgium and Russia.

Sales and operating profits at the company were not disclosed.

The total value of the deal is just over $1.4bn, with the final tally of Phillips 66 shares to be decided on closing, but PSPI’s assets include $450m in cash, giving an enterprise value of almost $1bn.

The acquisition of PSPI comes almost three years after Berkshire spent $9bn on the speciality chemicals group Lubrizol, and Mr Buffett put Lubrizol chief executive James Hambrick in charge of overseeing the integration of the companies.

Phillips 66 said the deal allowed it to focus investment on its midstream and chemicals business.

HMMMMM!

Happy trading in 2014.

Best wishes, Inca.