David Sokol's Role In Berkshire Hathaway's Lubrizol Deal

NEW YORK: Warren Buffett's leading heir apparent at Berkshire Hathaway, David Sokol, has resigned after buying shares in Lubrizol Corp, a chemical company he then pushed Buffett to acquire.

Below is a timeline of events running up to the $9 billion deal and Sokol's resignation, based on Buffett's statement on Wednesday and Lubrizol's regulatory filing on March 25.

Fall 2010: Sokol requests Citigroup investment bankers to come up with a list of possible targets for Berkshire Hathaway, including in the chemical industry. Citi gives him a list of 18 companies, including Lubrizol.

Dec 13, 2010: Sokol discusses the list with Citi and says Lubrizol was the only company he found interesting. He asks a Citi representative to tell Lubrizol Chief Executive James Hambrick that Sokol was interested in meeting to discuss a possible deal.

Dec 14: Sokol buys 2,300 Lubrizol shares.

Dec 17: Citi relayed Sokol's interest to Hambrick, who said he would inform the Lubrizol board of Berkshire's interest.

Dec 21: Sokol sells the Lubrizol shares.

Jan 5-7, 2011: Sokol buys 96,060 Lubrizol shares after placing a 100,000-share order with a $104 per share limit price.

Jan 6: Lubrizol's board discusses possible deal with Berkshire and engages Jones Day and Evercore for advice.

Jan 10: Lubrizol board convenes with Jones Day and Evercore to discuss a potential Berkshire deal. The board instructs CEO Hambrick to meet with Sokol.

Jan 14: Sokol and Hambrick have a general talk over the phone and set up a meeting for January 25

Jan 14 or 15: Sokol suggests buying Lubrizol to Buffett, with a "passing remark" that he owned some stock in the company. Buffett is not interested.

Jan 24: Buffett sends Sokol a short note expressing skepticism about making an offer for Lubrizol and preference to make another substantial acquisition.

Jan 25: Lubrizol CEO Hambrick meets with Sokol and gives him information about the chemical company, including internal forecasts for 2014 and 2015; Sokol reports the meeting to Buffett, who then warmed to the acquisition.

Jan 28: Evercore tell Lubrizol's board that Buffett called them the day before and expressed interest in the deal.

Feb 8: Hambrick meets with Buffett.

March 12: Lubrizol's board approves the sale to Berkshire.

March 13: Berkshire's board supports Buffett's decision to buy Lubrizol.

March 14: Berkshire announces plan to buy Lubrizol for $135 per share.

March 19: Shortly before leaving for a trip to Asia, Buffett learns the details of Sokol's purchase of Lubrizol shares.

March 28: Sokol's assistant delivers his letter of resignation to Buffett. Buffett says he had not asked for Sokol's resignation and that it came as a surprise. Sokol's letter says "it is my goal to utilize the time remaining in my career to invest my family`s resources in such a way as to create enduring equity value and hopefully an enterprise which will provide opportunity for my descendents and funding for my philanthropic interests."

March 30: Buffett announces Sokol's resignation request. He says, "Neither Dave nor I feel his Lubrizol purchases were in any way unlawful. He has told me that they were not a factor in his decision to resign."

Sources: Berkshire Hathaway statement, Lubrizol filing with U.S. Securities and Exchange Commission

(Compiled by Alina Selyukh)

Copyright 2011 Thomson Reuters. Click for Restrictions.

Comments

[blindhog]

11:54 AM on 04/02/2011

It appears "someone" is trying to turn that elephant gun back on Warren.

[redraspberry]

03:45 PM on 04/01/2011

Wikileaks strikes again.......
From Bill Bonner

Somehow, WikiLeaks got a copy of private memos - diary entries, really - written by David Sokol. As you know, Sokol was the man who was the front-runner to replace Warren Buffett at Berkshire Hathaway. He was also the man who made $3 million by front running Berkshire's latest purchase. Both Sokol and Buffett denied that the purchase of Lubrizol shares had anything to do with the former's departure. The diaries confirm the claim.

"I'm leaving. I've had it. I just can't stand the guy's folksy wisdom," wrote Sokol to himself. "Yes, the decision will probably cost me some money. But it's worth it not to have to spend another day in Omaha listening to the so-called 'Sage of the Plains.' Sage? The guy is a boring, old finger-wagger. And if he had dumped all those value stocks and bought gold when I told him to, we'd be a lot richer now."

[SpuriusLartius]

09:05 AM on 04/01/2011

This guy will get some jail time. This is a clear case of insider trading, or front running, and he will be prosecuted and found guilty. And he deserves it. His wealth is already in the hundreds-of-millions, and yet he wanted more. So, this time around: greed is bad.

[Mister Grumpy]

11:29 PM on 03/31/2011

Just more proof that if you steal a little money.......... you go to jail.......... if you steal a lot of money.......... you get rewarded with a government job offer..............

[Hank007]

05:39 PM on 03/31/2011

Yet another story to illustrate that rich people don't go to jail in America. Poor people have been trained to worship money so much, that even preachers now strive to be millionaires.

[Thumbody]

04:10 PM on 03/31/2011

Doesn't speak to highly of Buffets character now does it? Why would he trust this guy to run Berkshire? I wonder how the shareholders feel about this coming to light.

[Slim Dude]

02:23 PM on 03/31/2011

Sokol's letter says "it is my goal to utilize the time remaining in my career to invest my family`s resources in such a way as to create enduring equity value and hopefully an enterprise which will provide opportunity for my descendents and funding for my philanthropic interests."

This is why I support a steep inheritance tax. Why should his decendents benefit from his insider trading scheme? Why should they get a windfall without paying any tax? Let them get a job like everyone else.

[Lifer2006]

12:53 PM on 03/31/2011

Yeah I have some philanthropic ideas out of the crack of my a--.

[Lifer2006]

12:52 PM on 03/31/2011

Why isn't this hack in jail???? I knew Buffet is not necessarily whom he appears to be.

"No jack, I don't think there was anything inappropriate with this deal....hmmmm..I've lived in the same house for all my life. I drive my own car."

---Pretty disgraceful Mr Frugal.

[cyclone70]

12:49 PM on 03/31/2011

If it were any other wal street company but Buffet's the guy would have got a slap on the back, cigar, bonus and raise

[uneeda]

12:10 PM on 03/31/2011

just doing what the boss does

[orchids8]

12:02 PM on 03/31/2011

By Buffet's reaction one would surmise this type of activity is de rigueur. Under that scenario, insider trading doesn't even exist as a concept, let alone a reality.

This Sokol really is a genius. Imagine being briefed on 18 companies and you just happen to buy stock in the one Berkshire buys (only after getting even more internal information to sweeten the pot for Buffet). Well, they do tell us the best and brightest minds are in finance and this is certainly another shining example.

All the best to you, Mr. Sokol, as you venture out to create your own familial dynasty, complete with its bona fide foundation with your name on it. Or here's another idea, instead of cheating your way to self-aggrandizement so you can help all the little people; how about working for a level playing field were all the little people have plenty of opportunities to work for a better life.

[Halsey]

12:01 PM on 03/31/2011

I've worked compliance in brokerage firms and this is such blantant insider trading that it isn't even a question. No one in an investment firm gets to make any trades in a stock that is in talks with that firm. I'm rather shocked at Sokol's stupidity. Maybe his arrogance overran his braincells. He wants to make sure his family 100 years from now, still have lots of money. I'll borrow a line from Moonstruck "I think it's because he fears death".

The man MUST go to prison (after returning all profits plus a huge fine) for much longer than Martha Stewart.

[ScottV]

01:36 PM on 03/31/2011

My thoughts exactly Martha must be spitting nails!!!

[sealdadeal4me]

11:46 AM on 03/31/2011

I am sure the SEC will look futher into Mr Sokol's activities and so there will be more drama to come so he had to step away so that it would not reflect on BH and Mr. Buffet and so goes Mr. Sokol now all his chickens are about to come home to roost