Berkshire Hathaway Inc. agreed Tuesday to invest up to $10 billion in Occidental Petroleum Corp. (Oxy) to help the independent usurp Chevron Corp.’s bid to buy Anadarko Petroleum Corp.
Oxy is attempting to convince Anadarko to drop a merger agreement with Chevron Corp., which has a cash-and-stock deal in place estimated to be worth a total of around $50 billion, including debt. Oxy’s counter offer is estimated at around $57 billion. Anadarko’s board on Monday agreed to continue to negotiate with Oxy.
“We have long believed that Occidental is uniquely positioned to generate compelling value from Anadarko’s highly complementary asset portfolio,” Oxy CEO Vicki Hollub said. “We are thrilled to have Berkshire Hathaway’s financial support of this exciting opportunity. We look forward to engaging with Anadarko’s board of directors to deliver this superior transaction to our respective shareholders.”
Under the agreement, the Warren Buffett investment firm would receive 100,000 shares of Oxy cumulative perpetual preferred stock valued at $100,000/share and a warrant to purchase up to 80 million shares of common stock at $62.50/share.
Berkshire’s preferred stock and the warrant are being issued and sold in a private offering.
Raymond James & Associates Inc. analyst Pavel Molchanov said with Berkshire’s investment, the plot is thickening.
“Since everything Buffett does invariably gets outsized (dare we say, excessive) attention, let's first state the obvious: this is a very rare foray on his part into the energy sector. As it stands, Berkshire's public equity portfolio is significantly underweight energy, with only two holdings: Phillips 66 (market value of $1.1 billion) and Suncor Energy ($356 million).
“The proposed Oxy preferred would be seven times larger than both of these combined,” Molchanov noted. Berkshire previously had significant holdings in ExxonMobil Corp., which it exited in 2015, and in Kinder Morgan Inc., which it exited in 2017.
“Does it make it more likely that Occidental will prevail over Chevron in the bidding war for Anadarko? In a psychology/sentiment sense, the answer is probably yes,” Molchanov said. “Anadarko's board, which is currently in talks with Occidental, may well look at Buffett's proposed investment as a ‘seal of approval,’ an intangible but potentially valuable factor as the board is thinking about which bid to end up backing.”
From a financial perspective, Oxy would have been able to finance the deal by issuing common equity and debt, so the $10 billion preferred investment isn’t necessary, he noted.
“As such, we still think that Chevron is more likely to end up as the ‘winner’ of the bidding war (though, to be clear, we would prefer for neither company to be involved in the bidding war to begin with).”