OMAHA/HOUSTON – In a transaction that Wall Street is already hailing as a victory for the “Oracle of Omaha,” Berkshire Hathaway has agreed to acquire Occidental Petroleum’s chemical business, OxyChem, for $9.7 billion in cash. The deal, which marks Berkshire’s largest acquisition since its $11.6 billion purchase of insurer Allegheny in 2022, is widely speculated to be Warren Buffett’s final major move before he formally cedes the CEO title to Greg Abel at the end of the year.
While substantial, the OxyChem purchase is not the colossal “elephant” acquisition Buffett has long sought to put a significant dent in Berkshire’s massive, roughly $340 billion cash hoard. Instead, it is a strategic maneuver that deepens an already intertwined relationship between the two energy and chemicals giants.
A Deeper Dive Into the ‘Win-Plus’ for Berkshire
Berkshire Hathaway is already Occidental’s largest shareholder, holding an equity stake of nearly 27%, currently valued at $11.9 billion. This position is supplemented by over $8 billion in preferred shares—a form of loan provided in 2019 to finance Occidental’s acquisition of Anadarko Petroleum—which yield a rich 8% annual dividend. Furthermore, Berkshire holds warrants to buy nearly 84 million additional OXY common shares at just under $60 per share.
The market reaction to the announcement was mixed, with Occidental Petroleum shares initially falling over 8% before closing the week down 5.5%. Analysts are divided on the value proposition, particularly for Occidental.
- Barron’s Assessment: The financial publication was blunt, stating the deal scores “one for Warren Buffett at the expense of Occidental Petroleum CEO Vicki Hollub.” They suggest the purchase price could be a bargain for Berkshire, noting that earnings in the chemical sector are currently depressed but are expected to rise. The deal also strips Occidental of a key chemical business that helped differentiate it from its pure-play energy rivals.
- The Tax Hit: Complicating matters for Occidental is a reported $1.7 billion tax liability resulting from the cash sale—a liability that some observers argue could have been eliminated had Berkshire opted to use its high-yielding OXY preferred shares as currency for the deal. This outcome ensures Occidental will likely continue to pay Berkshire over $600 million in annual dividends until the preferred shares are scheduled for redemption in 2029.
However, not all market commentary was negative for Occidental. Fortune highlighted the clear benefits to Occidental’s balance sheet. Wolfe Research analyst Doug Leggate called the transaction a “win-plus for Berkshire because it also helps the company that they own [roughly] 30% of. It’s completely self-serving, it’s logical, and—not in any nefarious way—definitely helpful.”
Occidental’s Strategic Rationale
Occidental CEO Vicki Hollub strongly defended the move, emphasizing its importance for the company’s financial stability. In an interview, Hollub confirmed that $6.5 billion of the purchase price would be used to aggressively reduce debt, bringing the company below the $15 billion target set after its 2023 acquisition of Permian Basin producer CrownRock.
“The thing that we needed to do was improve our balance sheet,” Hollub stated. “So this is that last big step that we need and now I think we’re off and running to value creation that’s going to come at a much faster pace for our shareholders.” The reduced debt load will allow Occidental to immediately restart its share repurchase program.
Preparing for the Abel Era
The transaction comes as Berkshire takes formal steps to prepare for its CEO transition. The company’s board of directors recently voted to revise the corporate by-laws to formally separate the roles of chairman and chief executive officer.
This change, disclosed in a recent SEC filing, precedes current Vice Chairman Greg Abel’s scheduled takeover of the CEO role on January 1. Buffett, who announced the succession plan in May, will remain as chairman of the board, allowing him to maintain oversight and strategic influence over the conglomerate’s vast holdings while Abel manages day-to-day operations and major investment decisions.
In a final sign of Buffett’s enduring influence and legacy, a bronze bust of the legendary investor was recently sold for $26,201 in an eBay auction organized by one of his “ardent disciples,” investor Mohnish Pabrai. The proceeds benefit the Dakshana Foundation, which provides higher education entrance exam coaching to impoverished students in rural India, continuing Buffett’s philanthropic impact even as his CEO tenure winds down.
