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Berkshire Hathaway and Lubrizol Deal: Warren Buffett, David

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Fastmandoo   Tuesday, 04/05/11 12:28:53 PM
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Berkshire Hathaway and Lubrizol Deal: Warren Buffett, David Sokol Must Stay Above Suspicion

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I was quoted in the Financial Times about David Sokol, CEO of a Berkshire Hathaway (BRK-A) subsidiary, buying shares in Lubrizol (LZ) a few months before Buffett’s Berkshire Hathaway bought Lubrizol at a significant premium, which made Sokol $3 million on his $10 million purchase:

“Some investors expressed concerns about Mr Sokol’s actions. ‘Any time you buy stock in a company which your employer then buys [it] just does not smell right,’ said Vitaliy Katsenelson, chief investment officer of Investment Management Associates.”

This quote slightly misstates my view, as the issue here is more complex. Sokol was the CEO of MidAmerica and NetJets (subsidiaries of Berkshire); it is not his job to look for companies for Berkshire to buy -- Buffett and Munger are in charge of Berkshire’s capital allocation decisions. Sokol bought Lubrizol for his own account because he liked the business and thought it was attractively priced. If he had never mentioned Lubrizol to Buffett, there would be no controversy today. But he did, while disclosing that he owned the stock. Buffett expressed little interest in Lubrizol.

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