September 20, 2020

DealBook: Fresh Details on Berkshire’s Lubrizol Deal

David L. SokolDaniel Acker/Bloomberg News David L. Sokol resigned from Berkshire Hathaway on March 30.

Whether regulators bring an insider trading case against David L. Sokol — a former top deputy of Warren E. Buffett who was central to Berkshire Hathaway’s decision to buy Lubrizol — will hinge in part on whether he bought stock based on nonpublic, material information.

Now, fresh details are emerging about what Mr. Sokol knew, and when.

A preliminary proxy filed on Monday by Lubrizol indicates that Mr. Sokol was aware in mid-December that Lubrizol’s chairman and chief executive, James L. Hambrick, planned to talk with his board about a possible acquisition by Berkshire. Mr. Sokol was informed about the discussions by Citigroup on Dec. 17. In early January, Mr. Sokol bought nearly 100,000 shares of Lubrizol, a manufacturer of specialty chemicals.

It was previously unknown whether Mr. Sokol, who abruptly resigned last month, knew that Lubrizol’s chief had discussed a potential deal with his board.

The revelation casts a new spotlight on Mr. Sokol’s decision to take the nearly $10 million stake in Lubrizol as he worked behind the scenes on a potential deal to acquire the company. Some legal experts have questioned whether Mr. Sokol traded on inside information unavailable to the public, namely that a possible bid for Lubrizol was in the works.

The Securities and Exchange Commission is looking into Mr. Sokol’s stock purchases, according to people close to the agency.

Mr. Sokol has said that he did nothing wrong, and Mr. Buffett has agreed.

“Neither Dave nor I feel his Lubrizol purchases were in any way unlawful,” Mr. Buffett said in a statement last month, noting that Mr. Sokol made the trades before pitching the Lubrizol deal to Berkshire.

Mr. Sokol first expressed interest in a Lubrizol deal in December, shortly after meeting with Citigroup bankers who recommended the industrial manufacturer as a possible takeover target.

On Dec. 17, a Citi banker called Mr. Hambrick to inform him of Berkshire’s possible interest in the company, the Lubrizol regulatory filing said. Mr. Hambrick told Citi that he would inform his board about Berkshire’s possible interest.

“Later on December 17, 2010, Citi informed Mr. Sokol that Mr. Hambrick had indicated that he would discuss Berkshire Hathaway’s possible interest with the Board,” the filing said.

Mr. Sokol bought more than 96,000 Lubrizol shares on Jan. 5, 6 and 7. On Jan. 6, the Lubrizol board held a “special meeting” to discuss Berkshire Hathaway’s possible interest in the company, according to the Lubrizol filing. The board agreed right away to hire lawyers to advise on a possible deal.

“On or about January 10, 2011, Mr. Hambrick requested that Citi contact Mr. Sokol to inform him that he should expect a call from Mr. Hambrick and thereafter Citi so informed Mr. Sokol,” according to another addition in the Lubrizol filing.

On Jan. 14, Mr. Sokol and Mr. Hambrick talked on the phone about the “corporate cultures and philosophies” at their respective companies, according to the filing. They agreed to meet in person later in the month.

Mr. Sokol first mentioned a possible Lubrizol deal to Mr. Buffett on Jan. 14 or 15, according to Mr. Buffett. Mr. Sokol made a “passing remark” to Mr. Buffett about his stake in Lubrizol, Mr. Buffett said.

“Dave’s purchases were made before he had discussed Lubrizol with me and with no knowledge of how I might react to his idea,” Mr. Buffett wrote in his letter announcing Mr. Sokol’s resignation. “In addition, of course, he did not know what Lubrizol’s reaction would be if I developed an interest.”

Although Mr. Buffett was originally skeptical of the deal, he later became convinced. Berkshire ultimately agreed on March 14 to acquire Lubrizol for $9 billion.

Mr. Sokol resigned on March 30 as disclosures emerged about his stake in Lubrizol. The company said in the filing on Monday that it “first learned” of Mr. Sokol’s share purchases at the time of his resignation.

Article source: http://feeds.nytimes.com/click.phdo?i=d41e17c9caaabe0156e3296449892324

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