Berkshire Hathaway To Trade Stock for Phillips 66 Specialty Products Business

In a unique deal that will cost Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK-B) roughly 19 million shares of Phillips 66 PSX, worth about $1.4 billion, the Omaha, Nebraska conglomerate will acquire Phillips Specialty Products, according to Reuters.

Phillips Specialty Products, which produces large molecule chemicals called polymers that improve the flow potential of pipelines, attracted Buffett and Berkshire Hathaway’s interest partly on the strength of the Phillips 66 business portfolio.

In addition, in a statement Buffett said, "The flow improver business is a high-quality business with consistently strong financial performance."

Buffett tapped Lubrizol Corp. CEO, James Hambrick to oversee the newly acquired business. Berkshire owns Lubrizol, which it bought in 2011 for $9 billion.

According to Phillips 66 CEO Greg Garland, the company decided to sell because Buffett and Berkshire Hathaway made “a strong offer.” Garland indicated that moving forward Phillips 66 would continue to focus on oil and natural gas transportation and processing and its other chemicals businesses.

Raymond James & Associates analyst, Cory Garcia told Bloomberg that while Phillips 66 owns a number of businesses resulting from its spinoff from ConocoPhillips in 2012 that investors don’t value, the sale to Berkshire Hathaway would be seen as a positive.

According to Garcia, “Phillips is figuring out another way to extract value from a business that they think is being weighed down by a valuation that isn’t justified.”

Related: Warren Buffett Reveals $3.7 Billion Exxon Buy

For Buffett and Berkshire Hathaway, which held more than 27 million shares of Phillips 66 stock at the end of September, based on regulatory filings, the deal provides an opportunity to at least partially correct a self-admitted mistake Buffett made in 2008 when he bought the stock while oil prices were high.

At the time, Buffett called the investment a “major mistake.” Now, however, thanks to the just announced deal, Berkshire Hathaway will trade stock it already owns for a company that is a competitor to Berkshire-owned Lubrizol.

Better yet, the deal may save Berkshire on taxes it would have paid on gains in its Phillips stock.

Following regulatory review, the deal was expected to go through sometime in the first half of next year, according to the filing.

At the time of this writing, Jim Probasco had no position in any mentioned securities.