Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) announced its acquisition of Phillips Specialty Products Inc. (PSPI), a pipeline flow improver business, from Phillips 66 (NYSE:PSX) in an all-stock transaction.

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Berkshire will pay for the acquisition by tendering its holdings of Phillips 66 common stock, with the exact number of shares to be decided at the time of the conclusion of the deal.

PSPI products boost pipeline throughput

PSPI is a wholly-owned subsidiary of Phillips 66 and is the global leader in the science of drag reduction as applied to the flow of liquids through pipelines. “PSPI specializes in maximizing the flow potential of pipelines, increasing operational flexibility, throughput capacity and substantially increasing bottom-line profit potentials,” says the company’s website. Last year, PSPI was successful in increasing the throughput of The Transalpine Pipeline, one of Europe’s largest crude pipelines, from 35 MTA to 44 MTA.

PSPI’s products cover non-potable water, crude and refined product applications.

A high quality business, says Buffett

“I have long been impressed by the strength of the Phillips 66 business portfolio,” said Warren E. Buffett, Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) chief executive officer. “The flow improver business is a high-quality business with consistently strong financial performance, and it will fit well within Berkshire Hathaway. I plan to have James L. Hambrick, CEO of The Lubrizol Corporation, oversee its strategic direction.”

According to the Wall Street Journal, the deal could be valued at around $1.4B.

“Berkshire Hathaway made a strong offer for our high-performing flow improver business,” said Greg Garland, Chairman and CEO of Phillips 66. “This transaction optimizes our portfolio and focuses growth on our Midstream and Chemicals businesses.”

Berkshire-Phillips 66 Deal to close next year

The acquisition is expected to be concluded by the middle of next year, at which time PSPI would be carrying about $450M in cash and equivalents. According to an SEC filing by Phillips 66, Phillips 66 will exchange all of its common stock in Phillips Specialty Products Inc. for approximately 19 million shares of Phillips 66 (NYSE:PSX) common stock owned by Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B).