Lubrizol
A specialty chemical company acquired by Berkshire Hathaway in 2011 for $4 billion, known for additives that improve engine performance and industrial product quality.
Lubrizol
Lubrizol Corporation is a specialty chemical company that develops and manufactures additives and other specialty chemicals. Berkshire Hathaway acquired Lubrizol in September 2011 for approximately $4 billion ($135 per share), one of Buffett's significant "eleanor" acquisitions.
Overview
Lubrizol's products enhance the performance of:
- Engine oils — Additives that improve engine protection and efficiency
- Industrial lubricants — Specialty products for various industries
- Fuel additives — Products that improve fuel efficiency and cleanliness
- Personal care and pharmaceutical — Ingredients for consumer products
| Metric | Value |
|---|---|
| Acquired | September 16, 2011 |
| Purchase Price | ~$4 billion ($135/share) |
| CEO at Acquisition | James Hambrick |
| Headquarters | Wickliffe, Ohio |
| Status | Part of Berkshire's "Powerhouse Five" |
Why Buffett Acquired Lubrizol
Business Characteristics
"Lubrizol has the kind of business I like — it makes non-flashy products that work behind the scenes."
Key characteristics that attracted Buffett:
- Specialty chemicals — Niche products with loyal customers
- Essential inputs — Customers depend on Lubrizol for product performance
- Technical expertise — Deep knowledge in chemical formulations
The See's Candy Principle
Buffett applies the "See's Candy" test to acquisitions:
- Can the company raise prices without losing customers?
- Does it have durable competitive advantages?
- Is it managed by capable, honest people?
Lubrizol scored well on all counts.
Business Model
Additives Business
Lubrizol's core business is developing and manufacturing chemical additives:
- Engine oil additives — Improve wear protection, viscosity
- Fuel additives — Enhance combustion, prevent deposits
- Lubricant additives — Reduce friction, extend equipment life
Customer Base
Lubrizol serves:
- Major oil companies
- Industrial manufacturers
- Consumer product companies
- Pharmaceutical companies
Competitive Position
| Advantage | Description |
|---|---|
| Technical Expertise | Deep chemical formulation knowledge |
| Customer Relationships | Long-standing partnerships |
| Scale | Global manufacturing and R&D |
Leadership
James Hambrick
James Hambrick was CEO of Lubrizol from 2004 until his retirement in 2018:
- Led the company through the Berkshire acquisition
- Maintained focus on specialty chemicals
- Delivered consistent returns on capital
Financial Performance
Post-Acquisition Results
| Year | Pre-Tax Earnings | Notes |
|---|---|---|
| 2012 | ~$1B | First full year under Berkshire |
| 2013 | ~$1.1B | Powerhouse Five member |
| 2018 | Growing | Part of Berkshire's industrial group |
Lubrizol has been a consistent earnings contributor, generating returns above the cost of capital.
Why It Fits the Moat Concept
| Moat Type | Lubrizol Evidence |
|---|---|
| Essential Product | Customers depend on additives for performance |
| Switching Costs | Reformulating takes time and money |
| Technical Expertise | Proprietary chemical knowledge |
| Customer Relationships | Long-term supply agreements |
Related
- warren-buffett — Who acquired it
- berkshire-hathaway — Parent company
- compounding — Capital allocation from earnings
- capital-allocation — Acquisition financing