Warren Buffett's Berkshire Hathaway has put the brakes on the divestment cycle that had been unfolding in recent months and has resumed buying assets. On Thursday, October 2nd, the American investment firm announced the acquisition of the petrochemical company Occidental Petroleum (OxyChem) for US$9.7 billion.
This is Buffett's company's biggest deal since 2022, when Berkshire paid $11.6 billion for the insurance company Alleghany. The deal comes at a time when the group has accumulated $344 billion in cash.
Berkshire was already a major investor in Occidental, having acquired a 28.2% stake at the end of June. Buffett, who is 95 years old and will step down as CEO at the end of the year, stated that he will not assume full control of the Houston-based oil company.
OxyChem manufactures chemicals for water treatment and healthcare, such as caustic soda, chlorine, chlorinated cyanuric acid, and calcium chloride, among others. Occidental stated that it will use US$6.5 billion to pay down debts.
Occidental CEO Vicki Hollub says the debt reduction resulting from the deal will allow her company to restart its share buyback program.
“The problem has been reducing our debt more quickly, so this resolves the only outstanding issue which, I believe, will now unlock our shares and allow shareholders to feel more comfortable increasing their positions and allowing others to enter,” the executive stated in an interview with CNBC .
"So now we can start our stock purchase program again. This is the final step we needed in our major transformation that we began 10 years ago," added the company president.
The last time Berkshire made an acquisition related to the chemical sector was in 2011, when it bought the American multinational Lubrizol, a supplier of chemical products for the transportation, industrial and consumer markets, for a similar amount, around US$10 billion.
“We look forward to welcoming OxyChem as an operating subsidiary to Berkshire,” said Greg Abel, Berkshire’s vice president of non-insurance operations, in a statement. The deal is expected to close in the fourth quarter.
Abel, who will succeed Buffett as CEO of Berkshire starting next year, says Hollub is demonstrating his “commitment to Occidental’s long-term financial stability, as shown by the plan to use profits to strengthen the company’s balance sheet.”
Buffett first became involved with Occidental in 2019, when he helped finance the purchase of Anadarko Petroleum with a $10 billion commitment. In return, the investor received preferred stock and warrants to purchase common stock.
According to the petrochemical company's CEO, as Occidental increases its cash position, it will begin redeeming Berkshire's preferred stock in 2029. Occidental currently pays an 8% dividend on Berkshire's preferred stock.
In the first half of 2024, Buffett reduced his stake in tech giant Apple by 55%. At the time, Business Insider published a study showing that the company could have missed out on more than $23 billion with this move.
In May of this year, Buffett's company sold all of its Nubank shares, making a 46% profit since its initial $500 million purchase before the bank's IPO on the New York Stock Exchange in 2021.
In September, Berkshire Hathaway sold off its 17-year stake in China's BYD. During that period, the value of Buffett's company's investment increased more than 20 times. The company began investing in the automaker in 2008, when it paid US$230 billion for the equivalent of a 10% stake at the time. Profits during that period reached nearly 4,000%.
Following the announcement of the agreement with Berkshire, OxyChem's shares on the New York Stock Exchange began trading lower on Thursday, October 2nd. Around 2:20 PM (local time), the company's shares were down 7.66%. The accumulated devaluation by 2025 reaches 10.8%. The company is valued at US$43.3 billion.
Berkshire also registered a slight drop on the NYSE, with a depreciation of 0.48% at the same time. Year-to-date, the shares are up 9.4%. Warren Buffett's investment firm has a market capitalization of US$1.07 trillion.
