Warren Buffett Adds To Automotive Bets With $560 Million Axalta Investment – Forbes

Posted: Tuesday, April 07, 2015

Berkshire Hathaway’s Berkshire Hathaway’s Warren Buffett is increasing his investment in the recovering U.S. automotive sector, this time by taking a $560 million stake in Axalta Coating Systems Axalta Coating Systems, a 145-year old seller of coatings for cars, SUV’s and commercial vehicles.

The investment comes as Axalta’s private equity owner The Carlyle Group begins exiting an extremely successful buyout investment. Carlyle bought Axalta from DuPont DuPont for $4.9 billion in 2013 as the chemical and agriculture giant’s CEO Ellen Kullman sought to pare down its operations and focus on high margin businesses. The deal proved a quick success for Carlyle, which took Axalta public this November, selling 50 million shares at $19.50 apiece, more than tripling its investment.

Since going public, Axalta shares have performed strongly, rising 50% in under six months. However, that post-IPO surge isn’t keeping Buffett on the sidelines. Berkshire will be buying 20 million Axalta shares directly from Carlyle for $28 apiece, a slight discount to the company’s Monday closing price.

Warren Buffett, CEO of Berkshire Hathaway, in a panel discussion at the 2015 New York Automotive Forum on March 31, 2015

For Axalta, the Berkshire investment, which amounts to a little under 10% of its outstanding stock, will likely be seen as a vote of confidence for the company’s business outlook.

“Berkshire is the type of quality investor that Axalta has been fortunate to attract since our IPO last year. We believe this investment shows Berkshire’s support of our strategy to reshape ourselves into a growth and customer oriented, world class coatings company,” Charlie Sharver, CEO of Axalta said in a Tuesday statement.

The secondary stock sale may also drive speculation that Berkshire could eventually take a greater stake in Axalta, or potentially acquire the $6.5 billion market cap company outright. That’s especially the case as Berkshire targets investments in the automotive sector, which is benefiting from rising demand for new vehicles amid the strongest labor market gains since the financial crisis, and consistent U.S. gross domestic product growth.

In October, Berkshire bought nationwide dealership Van Tuyl Automotive. Although Buffett declined to disclose his purchase price, he presented the deal as a major investment for his $354 billion market cap company.

In Berkshire’s 2014 annual letter to shareholders Buffett  pointed out that Van Tuyl’s $9 billion in annual sales would make it the ninth Berkshire operating subsidiary large enough to be listed on the Fortune 500. Buffett’s also indicated in subsequent media appearances he is interested in bolstering his automotive investments, both by investing in Van Tuyl’s expansion and through new investments.

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