Berkshire Hathaway’s Major Acquisition
Berkshire Hathaway is set to acquire Occidental’s petrochemicals division for $9.7 billion, potentially marking one of Warren Buffett’s last significant deals in his storied career as a dealmaker.
Interestingly, Buffett’s name didn’t appear in the release from Berkshire. Maybe they’ll bring him up in their upcoming discussions on Thursday, perhaps as Greg Abel prepares to step into the CEO role in January. It’s as if they’re hinting that it’s time for a transition.
Buffett will remain as chairman, still playing a crucial role in determining how to allocate more than $34.4 billion in cash that Berkshire is sitting on.
Over the years, Berkshire’s cash reserves have been on the rise. After completing the $11.6 billion acquisition of Alleghany Insurance in 2022, Buffett hasn’t found many large deals at favorable prices. The market has become quite competitive lately, with many hedge funds driving up acquisition costs.
The Oxychem division, which produces chemicals like chlorine for water treatment and calcium chloride used for road maintenance, seems to integrate well into Berkshire’s diverse portfolio. Buffett had previously purchased $9 billion worth of Occidental shares back in 2011.
“Berkshire has acquired a robust portfolio of operating assets supported by skilled teams,” Abel commented in a prepared statement. “We look forward to welcoming Oxychem into our operating family.”
This second quarter, Oxychem brought in $213 million for Occidental, a drop from nearly $300 million the year before. Occidental has been offloading some assets in the Permian Basin, raising $950 million to manage its commitments.
Occidental anticipates utilizing $6.5 billion from the revenue generated by the Berkshire deal to trim down its substantial debt, aiming for less than $15 billion total debt following its recent transactions with CrownRock.
Before this deal, Berkshire owned over 28% of Occidental’s shares, along with a warrant for an additional 83.9 million shares at $59.586 each. In addition, Berkshire retains about $8.5 billion in preferred stock initially acquired in 2019, yielding an 8% dividend yearly.
Buffett had previously assured Berkshire investors that he wouldn’t divest from Occidental, even as he sporadically bought more shares. However, he noted earlier this year that he had no immediate intention of making further purchases.
Berkshire’s extensive portfolio includes notable firm like GEICO, BNSF Railroad, a variety of utility companies, and familiar brands such as Dairy Queen and See’s Candy.
Buffett’s conglomerate-building journey has spanned over six decades, with the company also holding more than $250 billion in shares, including significant stakes in Apple, Coca-Cola, and Bank of America.
The acquisition of Oxychem is projected to finalize in the fourth quarter of this year.
