UPDATE 2-Berkshire Hathaway buys toy and party supplies company

* Sale for $500 million - person close to the deal

* KKR, other investors had picked it up in 2010 restructuring

Nov 2 (Reuters) - Warren Buffett's Berkshire Hathaway Inc said it would buy Oriental Trading Co, a toy and party supplies company that is partially owned by private equity firm KKR & Co LP, for an undisclosed sum.

The deal may be the last for a while for the Omaha, Nebraska-based company, whose merchandise ranges from pink flamingos and wedding favors to Halloween decorations and beading supplies, after it was passed around by private equity firms over the past few years.

Berkshire will pay around $500 million for Oriental Trading after an earlier auction did not yield satisfactory bids, according to a person close to the deal.

Oriental Trading's strong cash flow and high core profit margins, compared to its peers, made the business attractive to Buffett, the person said.

Buffett, who hails from Omaha, was also drawn to the stability of Oriental Trading's management team, many of whom have been at the company for several years, the person added.

Oriental Trading, which filed for Chapter 11 bankruptcy protection in August 2010, is owned by more than a dozen financial institutions, including KKR.

``Over the past two years the company has transitioned to steady growth, both top and bottom line, and there is no question the company has a bright future as part of the Berkshire Hathaway enterprise,'' Jeremiah Lane, a director in KKR's special situations team, said in a statement.

In 2006, Carlyle Group LP purchased most of Oriental Trading for $1 billion from private equity firm Brentwood Associates. Saddled with debt, the company filed for bankruptcy in Aug. 2010, allowing creditors to take over.

Two years later, these investors were looking for an exit. Reuters reported in August that Oriental Trading was up for sale in a deal that could fetch about $500 million.

The deal is expected to close by the end of November. Oriental Trading was advised by Lazard Middle Market..

Founded in 1932, Oriental Trading sells more than 40,000 products, ranging from Halloween decorations to teaching supplies and novelty toys.

Oriental Trading adds to the list of several recent deals for retailers of party and crafts supplies.

Party City Holdings Inc was purchased by private equity firm Thomas H. Lee Partners in June for $2.69 billion.

Crafts retailer Michaels Stores Inc filed for a $500 million initial public offering in March, although those plans are currently on hold, according to sources familiar with the matter.