Warren Buffett’s Berkshire Hathaway Inc. (NYSE:BRK.A; BRK.B) and Phillips 66 (NYSE:PSX) jointly announced that they have entered into an agreement pursuant to which Phillips 66 will sell its ownership in Phillips Specialty Products Inc. (PSPI) for approximately 19 million shares of its own (i.e., Phillips 66) common stock held by Berkshire Hathaway.
The deal is valued at around $1.4 billion based on 19 million shares at PSX’s closing price on Monday. The exact number of Phillips 66 shares to be paid by Berkshire Hathaway will depend on the volume weighted average price of Phillips 66 common stock on the closing date.
PSPI, a wholly-owned subsidiary of Phillips 66, is the global leader in the science of drag reduction and markets “flow improver solutions, working with customers in more than 35 countries on 6 continents, treating more than 12 million barrels of hydrocarbon liquids a day.” Its technology is designed to maximize the flow potential of pipelines, increasing operational flexibility and throughput capacity.
In an 8-K filed with the SEC on Monday, Phillips 66 said that it expects that PSPI’s balance sheet will include approximately $450 million of cash and cash equivalents at closing. The transaction is expected to close in the first half of 2014 following regulatory review.
For his part, Mr. Buffett said in a statement: “I have long been impressed by the strength of the Phillips 66 business portfolio. The flow improver business is a high-quality business with consistently strong financial performance, and it will fit well within Berkshire Hathaway. I plan to have James L. Hambrick, CEO of The Lubrizol Corporation, oversee its strategic direction.”