Subject: WARREN BUFFETT WATCH
" Buffett seen as 'winner' in what may be his last big buy as CEO

Berkshire Hathaway has a deal to pay $9.7 billion in cash to buy OxyChem, Occidental Petroleum's chemical business.

It could be Warren Buffett's last major acquisition before he gives up his CEO role at the end of the year.

It is Berkshire's biggest deal since it paid $11.6 billion for insurer Allegheny in 2022, but it is not the enormous "elephant" that Buffett has been hunting for that would put a significant dent in the company's roughly $340 billion in cash as of the end of June.

Warren Buffett Watch Graph
A screen displays trading information for Occidental Petroleum at the NYSE on Oct.2. REUTERS/Brendan McDermid

The deal builds on an already close relationship between the companies: Berkshire is Occidental's largest shareholder with a stake of almost 27% currently valued at $11.9 billion.

In addition, Occidental is paying an 8% dividend on more than $8 billion in preferred shares held by Berkshire after what was, in effect, a loan to help OXY buy Anadarko Petroleum in 2019.

As part of that deal, Berkshire also now holds warrants to buy nearly 84 million additional OXY common shares for just under $60 per share, which is higher than their current price just under $45.

Despite those ties, Buffett told shareholders two years ago Berkshire will not try to acquire Occidental in its entirety.

In a live interview on CNBC's "Squawk Box" the morning of the announcement, CEO Vicki Hollub said it will use $6.5 billion of the OxyChem purchase price to reduce its debt, bringing it below the $15 billion target set when it bought Permian Basin producer CrownRock in late 2023 for $12 billion.

"Now we're going to be able to start our share repurchase program again ...

"The thing that we needed to do was improve our balance sheet. So this is that last big step that we need and now I think we're off and running to value creation that's going to come at a much faster pace for our shareholders."

Occidental Petroleum CEO: $9.7B Berkshire-OxyChem deal brings forward value to our shareholders
Wall Street isn't as positive as Hollub is about the deal.

Occidental Petroleum shares fell as much 8.1% on Thursday, the day of the announcement, but then bounced back a bit to close out the week with a 5.5% drop.

Warren Buffett Watch Graph
Barron's is blunt in its assessment: "Score one for Warren Buffett at the expense of Occidental Petroleum CEO Vicki Hollub."

It says the purchase price "could be a bargain because earnings in the sector are depressed this year" and are expected to head higher.

In addition, Occidental will be losing a chemical business that helped differentiate it from energy rivals.

It will also be facing a $1.7 billion tax hit that would have been eliminated had Berkshire used its OXY preferred shares to pay for the deal, as some had anticipated.

That means Occidental will probably continue to pay Berkshire more than $600 million in dividends each year until the preferred shares are scheduled to be redeemed in 2029.

Fortune, on the other hand, highlights the benefits to Occidental of reducing its debt load.

It quotes Wolfe Research analyst Doug Leggate calling the deal a "win-plus for Berkshire because it also helps the company that they own [roughly] 30% of. It’s completely self-serving, it’s logical, and—not in any nefarious way—definitely helpful."

That's the way Berkshire's Greg Abel played it in the deal's news release that, interestingly, never mentioned Buffett's name.

"We commend Vicki and the Occidental team for their commitment to Occidental’s long-term financial stability, as demonstrated by their plan to use proceeds to reinforce the company’s balance sheet."

 
Berkshire takes formal step to prepare for Abel's new job

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An SEC filing today (Friday) says the board voted to make the revisions on Tuesday, almost three months before current Vice Chairman of Non-Insurance Operations Greg Abel is scheduled to become CEO on January 1.

As Warren Buffett said in May when he announced he would step down from the CEO job, he will remain chairman of the board.

Berkshire Hathaway CEO-designate at the 2024 annual meeting. REUTERS/Scott Morgan
Berkshire Hathaway CEO-designate at the 2024 annual meeting. REUTERS/Scott Morgan

 
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