Buffett Secures $10 Billion OxyChem Deal at 95, Proving Dealmaking Prowess

Warren Buffett has made a significant move in the business world by securing a $9.7 billion deal for Occidental Petroleum’s chemical subsidiary, OxyChem. This acquisition marks Buffett’s largest purchase since 2022, showcasing his keen investment strategies even at age 95.

Strategic Dealmaking by Buffett

This acquisition not only highlights Buffett’s ability to buy quality businesses at favorable prices but also demonstrates his skill at navigating complex market situations. Occidental Petroleum, facing significant debt, was eager to divest OxyChem during a low point in the chemical markets.

Market Conditions and Company Motivations

According to analysts at JPMorgan, the timing of this sale is crucial. Occidental is parting with OxyChem while the chemical industry operates below mid-cycle conditions. This strategic move allows Buffett to capitalize on an opportunity while minimizing potential future risks.

Environmental Liabilities and Financial Considerations

• Occidental retains approximately $1.9 billion in environmental remediation liabilities from OxyChem.
• This liability could pose risks to future cash flows if remediation costs exceed estimates.
• Analysts anticipate a loss of potential cash flow from an expansion project planned for 2026, which could have added $460 million annually to Occidental’s revenue.

Impact on Occidental’s Stock

Following the announcement of the deal, Occidental’s stock price fell over 7%. This decline reflects investor concerns regarding the implications of the deal’s terms.

Buffett’s Historical Involvement with Occidental

Buffett’s relationship with Occidental began in 2019 with a $10 billion investment that supported its acquisition of Anadarko Petroleum. Since then, he has steadily increased his stake in Occidental, becoming the largest shareholder, holding 28.2% of the company by mid-2023.

Future Prospects and Dividends

Occidental currently provides an 8% dividend on Buffett’s preferred shares and a 2.1% dividend yield on common stock. Occidental’s CEO, Vicki Hollub, indicated plans to redeem Berkshire’s preferred shares by 2029 as the company’s cash flow improves.

This strategic acquisition by Buffett not only reinforces his status as a formidable figure in dealmaking but also shapes the future dynamics of both Berkshire Hathaway and Occidental Petroleum.