April 13, 2011 in Business

Details emerge in Lubrizol deal

Sokol knew of bid’s progress, filing says
Alistair Barr MarketWatch
 

Sokol
(Full-size photo)

SAN FRANCISCO – David Sokol knew of progress toward a possible Berkshire Hathaway Inc. bid for Lubrizol Corp. before he bought almost $10 million worth of stock in the lubricant company, according to a new regulatory filing.

Sokol, once considered a leading candidate to replace Warren Buffett at the helm of Berkshire, resigned in late March after it came to light that he bought Lubrizol shares before urging Buffett to buy the company.

Buffett said there was nothing illegal about the trades, and Sokol told Fox Business Network that there was “absolutely no inside information” involved.

But Lubrizol updated its proxy statement for the deal late Monday and included new information about what it said Sokol was told in December about progress toward a possible deal for the company.

Sokol was told that Lubrizol’s chief executive planned to inform the board about Berkshire’s “possible interest” in bidding for the lubricant company, according to the April 11 filing.

“This new information is extremely problematic,” said attorney Andrew Stoltmann, who represents investors who are victims of investment fraud. “Knowledge of what a chief executive officer plans to tell his board regarding a possible acquisition would likely be considered material, nonpublic information. Trading on this information is a significant problem under the federal securities laws.”

John Coffee, a professor at Columbia Law School, said this adds to the evidence against Sokol, “but does not make it a slam dunk.”

“It is still open to question whether this information was material as of his purchases in early January,” Coffee wrote in an email to MarketWatch.

Buffett said Sokol first brought him the idea of Berkshire buying Lubrizol on Jan. 14 or 15. Sokol mentioned to the Berkshire chairman that he owned Lubrizol stock, but Buffett said it was a “passing remark.”

“I did not ask him about the date of his purchase or the extent of his holdings,” Buffett added.

Late on March 13, Berkshire agreed to buy Lubrizol for $135 a share in cash, and the two companies announced the transaction the next morning, the regulatory filings said.

Lubrizol shares surged 28 percent on March 14.

It’s not clear if Sokol still holds his Lubrizol shares. If he still held them on March 14, he would have made almost $3 million.


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