Why Warren Buffett Is Investing $10 Billion in Occidental Amid Anadarko Acquisition Battle
Discover how Warren Buffett's $10 billion investment in Occidental Petroleum intensifies the Anadarko bidding war, offering Berkshire Hathaway increased energy sector exposure and substantial dividend returns.
Warren Buffett has strategically entered the competitive acquisition race for Anadarko Petroleum Corp. (APC), a leading energy firm valued at over $36 billion, currently contested by Chevron Corp. (CVX) and Occidental Petroleum Corp. (OXY). In a surprising development, Buffett's Berkshire Hathaway Inc. (BRK.A) announced a $10 billion capital injection to support Occidental's bid, contingent upon Occidental emerging as the successful acquirer over Chevron.
Buffett had previously hinted at pursuing a "large-scale acquisition" in his latest annual shareholder letter. While $10 billion is modest compared to Berkshire's $112 billion cash reserves at the end of 2018, this investment significantly boosts Berkshire's stake in the rising oil market. Occidental CEO Vicki Holub expressed enthusiasm about Berkshire Hathaway's financial backing, highlighting the strategic advantage it brings. Notably, Occidental's corporate jet was spotted in Omaha, Berkshire's headquarters, underscoring the collaboration.
Key Details of Buffett’s Investment in Occidental:
- Investment amount: $10 billion
- Berkshire receives 100,000 shares of cumulative perpetual preferred stock
- Each preferred share valued at $100,000
- Preferred stock offers an 8% annual dividend
- Berkshire holds warrants to purchase up to 80 million OXY shares at $62.50 each
- Investment depends on Occidental winning the bidding war
Source: Occidental Petroleum
Additional Insights on the Anadarko Deal
Occidental has proposed a combined stock and cash offer of $76 per Anadarko share, valuing the company at approximately $38.1 billion, compared to Chevron’s $33 billion bid. Occidental CEO Holub emphasized the unique value Anadarko’s complementary assets bring, and Anadarko’s board has deemed Occidental’s offer a "superior proposal."
With Occidental’s market capitalization around $43.9 billion versus Chevron’s $230 billion, Berkshire’s substantial financial support is crucial for Occidental to compete effectively. Buffett’s team believes the acquisition will unlock meaningful operational synergies by integrating Anadarko’s holdings.
Additionally, Berkshire owns Northern Natural Gas, the largest interstate natural gas pipeline company in the U.S. Post-acquisition, Occidental is expected to divest $10 billion to $15 billion in assets, potentially including Anadarko’s stake in Western Midstream Partners LP (WES), as analyzed by Tudor Pickering Holt & Co.
Through this deal, Berkshire stands to gain $800 million annually in dividends from its preferred stock investment. Despite the announcement, Occidental’s shares initially declined, with some analysts cautioning about the risks tied to the deal’s scale.
Berkshire Hathaway’s Investment Portfolio Overview
Berkshire Hathaway manages an extensive equity portfolio valued at approximately $209.6 billion. However, its top ten holdings lack major energy stocks. The leading six investments include Apple Inc. ($50.1 billion), Bank of America Corp. ($27.5 billion), Wells Fargo & Co. ($20.6 billion), The Coca-Cola Co. ($19.5 billion), American Express Co. ($17.6 billion), and Kraft Heinz Co. ($10.8 billion).
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