Buffett: All it took was about 30 words. That’s what Lubrizol added to its merger proxy to produce a smoking gun in the affair that has rivetted Corporate America. In an updated regulatory filing on Monday, Lubrizol answered the most important outstanding question needed to determine whether David Sokol, a former Berkshire Hathaway executive and heir apparent to Warren Buffett, traded using inside information.
It was already clear from Lubrizol’s sequence of events leading to its agreement to be acquired by Berkshire for $9 billion that Sokol had kicked the deal into action. As outlined in the proxy submitted to the Securities and Exchange Commission, he chose Lubrizol from a list of potential deals submitted to him by Citigroup.
After that December 13 meeting, Sokol, who had been approached by Citi in his capacity as a dealmaker for Berkshire, told the investment bankers to let Lubrizol’s boss know Buffett’s company might be interested in chatting about a possible transaction. Three days later, Citi did so. That led to a January 6 board meeting, where a deal was discussed.
But Lubrizol has now shed new light on its account. The lubricants maker said Citi not only reached out to its chief executive, James Hambrick, about Sokol’s interest on Dec. 17, but that “Citi informed Sokol that Hambrick had indicated that he would discuss Berkshire Hathaway’s possible interest with the board.” Bang — that answers one big question about what Sokol knew.
Sokol, at least according to Lubrizol, was made aware that the target’s board would meet to discuss a possible takeover before he accumulated $10 million of Lubrizol stock on Jan. 5, 6 and 7. There's no doubt non-public information would have been material to shareholders. Imagine how the shares would have moved upon publication of the following headline: “Lubrizol board meets to discuss Berkshire interest.”
Buffett has said he agrees with Sokol’s assessment that he did nothing “in any way unlawful.” But as new evidence in the matter emerges, that assessment looks increasingly wrong.
