OMAHA, Neb. — Berkshire Hathaway has announced its acquisition of Occidental Petroleum’s chemical division for $9.7 billion. This deal could mark one of the final big moves by Warren Buffett, who will step down as CEO in January, handing over the reins to Vice Chair Greg Abel.
Buffett’s connection to Occidental CEO Vicki Hollub runs deep; he has praised her leadership since assisting her in a significant 2019 acquisition. Even though Buffett wasn’t highlighted in the press releases, it’s clear he had a role in this transaction, especially given Berkshire’s cautious approach to big investments since their last acquisition in 2022.
Berkshire’s cash reserves have swelled to over $344 billion. Analysts note that the growing presence of hedge funds has pushed prices higher, making it increasingly challenging for Buffett to find desirable acquisitions.
The OxyChem acquisition is substantial but only represents a small fraction (less than 3%) of Berkshire’s cash. Shareholder reactions have been tepid, reflected by a slight decline in Berkshire’s stock, while Occidental’s shares fell by over 7% following the announcement.
OxyChem produces various chemicals, including chlorine for water treatment and vinyl chloride for plastics, complementing Berkshire’s existing Lubrizol division. Abel expressed enthusiasm about integrating OxyChem into Berkshire’s portfolio, emphasizing its robust assets and experienced team.
As Buffett prepares to step aside, market watchers are keen to see how Abel will approach future deals. Jim Shanahan, an analyst at Edward Jones, mentioned that Abel’s hands-on management style might lead to new collaboration efforts among Berkshire’s companies. However, this could also depart from Buffett’s traditional approach of allowing acquired companies substantial independence.
On the Occidental side, the acquisition will accelerate their debt reduction strategy. OxyChem generated $213 million in pretax earnings for Occidental in the last quarter, down from $300 million previously. To tackle its debt, Occidental has been divesting assets in the Permian Basin, aiming to eliminate $7.5 billion in debt. They plan to allocate $6.5 billion from this deal towards lowering their debt load.
Berkshire currently owns over 28% of Occidental’s stock, with options to buy more shares. Buffett has also invested in Occidental’s preferred shares, securing an 8% annual dividend.
Buffett’s direction has shaped Berkshire for over six decades. The conglomerate holds a diverse range of businesses, including insurance giants like Geico and various well-known brands. The OxyChem deal is set to close in the fourth quarter of this year.
With Warren Buffett’s eventual transition from CEO raising questions about the future direction of Berkshire, this latest acquisition illustrates the careful balancing act between maintaining tradition and exploring new strategies under Abel’s leadership.
For more insights on chemical markets and corporate acquisitions, you can explore this report from Rystad Energy.
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