NEW YORK Warren Buffett's Berkshire Hathaway Inc (BRKa.N) struck a deal to buy a Phillips 66 (PSX.N) business that makes chemicals to improve the flow potential of pipelines for around $1.4 billion of stock.
Phillips 66 said on Monday that Berkshire will pay for the unit, Phillips Specialty Products Inc, using about 19 million shares of Phillips 66 stock that it currently owns.
"I have long been impressed by the strength of the Phillips 66 business portfolio," Buffett said in a statement. "The flow improver business is a high-quality business with consistently strong financial performance."
The exact number of shares Berkshire will pay for the unit will be determined by their price on the closing date, the companies said.
James Hambrick, CEO of Berkshire's specialty chemicals unit Lubrizol Corp, will oversee the business, Buffett said. Berkshire bought Lubrizol for about $9 billion in 2011.
Phillips 66 CEO Greg Garland said the company decided to sell the business because Berkshire Hathaway made a strong offer. He said the company will now focus its growth on its oil and natural gas transportation and processing business, as well as its other chemicals businesses.
Phillips 66 said it expects the Phillips Specialty Products unit to have about $450 million of cash and cash equivalents on its balance sheet at closing. It expects the deal to close in the first half of 2014.
Berkshire favors larger companies with consistent earnings power and easy-to-understand businesses.
In June, it paid $12.3 billion for half of ketchup maker H.J. Heinz Co, and in May said it paid $2.05 billion for the 20 percent it did not already own of Israeli toolmaker Iscar.
Earlier this month, Berkshire's MidAmerican Energy unit paid $5.6 billion for the Nevada utility NV Energy Inc.
Omaha, Neb.-based Berkshire still has the capacity to make one or more large purchases, which Buffett calls "elephants."
Berkshire ended September with $42.08 billion of cash and equivalents, and generates significant cash from the insurance operations for which it is perhaps best known.
(Reporting by Michael Erman and Jonathan Stempel; editing by Andrew Hay)