Berkshire Hathaway Inc. CEO Warren Buffett (Photo by Scott Eells/Getty)
Warren Buffett has made no secret of his proclivity for dealmaking recently, with the Berkshire Hathaway CEO boasting earlier this year that he is flush with cash and on the hunt for acquisitions.
It is no surprise, then, that he would squeeze in one more transaction before ringing in a new year. What is unusual about the so-called Oracle of Omaha’s latest deal is that doesn’t require him to tap into that ample pile of cash.
Announced Monday, the deal in question finds Berkshire acquiring a specialty chemicals unit from Houston-based downstream oil and gas company Phillips 66. The terms of the agreement call for Buffett’s holding company to pay for the acquisition with some 19 million shares of Phillips 66 stock it already owns, valuing the deal at roughly $1.4 billion (based on Phillips 66′s Monday closing price). According to Fortune, Berkshire owns those shares as the result of a 2008 investment in ConocoPhillips, which spun Phillips 66 off in a deal announced last year.
Phillips 66 said the exact number of shares changing hands will be determined by its own share price when the deal closes, which is expected to occur in the first half of 2014, pending regulatory approval.
The unit Berkshire is acquiring, Phillips Specialty Products, makes chemicals used to improve flow in oil pipelines. In announcing the deal, Buffett called the unit “a high-quality business with consistently strong financial performance” and said he plans to have management of The Lubrizol Corporation—which Berkshire acquired for $9 billion in 2011—oversee the business. Lubrizol makes a similar line of chemicals used to improve pipeline flow.
Monday’s acquisition caps a busy year for Buffett and Berkshire on the transactional front. In an acquisition the billionaire investor suggested would be the first in a series of deals, his holding company teamed with private equity firm 3G to buy condiment maker H.J. Heinz Company for $28 billion in February. A couple of months later, Berkshire paid $2.05 billion to acquire the 20 percent stake in IMC International Metalworking Companies it did not already own. And in October a holding company owned in part by Berkshire, The Marmon Group, bought IMI’s beverage dispensing and merchandising units in a cash deal worth $1.1 billion.
For most of its transactional needs, Berkshire has turned to longtime outside counsel Munger, Tolles & Olson. As we have previously reported, Buffett’s closest adviser is Berkshire vice-chairman Charles Munger, the Munger Tolles founding partner who joined the investment firm in 1965. Munger Tolles has advised Berkshire on numerous past deals, including the acquisitions of Lubrizol, Heinz and IMC.
The firm is also advising Berkshire on the Phillips 66 deal with a team that includes Los Angeles–based corporate partner Mary Ann Todd, as well as tax partners Stephen Rose and David Goldman and compensation and benefits of counsel Williana Chang. Munger Tolles corporate associates Jesse Creed and Mark Sayson are also working on the matter, along with tax attorney Samuel Greenberg.
For its part, Phillips 66 has turned to Bracewell & Giuliani for legal advice on the sale of the chemicals unit. The Bracewell team includes Houston-based business and regulatory chair G. Alan Rafte, as well as corporate partner William Anderson, antitrust partner Daniel Hemli, compensation and benefits partner Bruce Jocz, tax partner Elizabeth McGinley, labor and employment partner Robert Nichols and technology law partner Jeffrey Whittle. The Bracewell associates working on the deal are Maine Goodfellow and Vivian Ouyang. Paula Johnson serves as general counsel for Phillips 66.
Bracewell represented ConocoPhillips in connection with the Phillips 66 spin-off last year and also advised Phillips 66 on a $5.8 billion senior notes offering ahead of the spin-off’s completion.