Berkshire Hathaway to Invest $10 Billion in Occidental Petroleum’s Anadarko Bid
Berkshire Hathaway, run by Warren Buffett, has agreed to invest $10 billion into Occidental Petroleum Corp.’s bid to acquire Anadarko Petroleum Corp. Occidental’s competitor for the bid is Chevron Corp., who agreed to pay $33 billion for Anadarko, only to be topped by Occidental at $38 billion last week. The main benefit in the deal comes from energy assets in the Permian Basin, the world’s most productive oil field, in West Texas and New Mexico.
Berkshire’s investment helps strengthen Occidental’s position against Chevron, which is four times its size. The support shows that Occidental is prepared to continue to fight against any counteroffers Chevron may have. Anadarko said on Monday that the company was considering Occidental’s offer.
Provided that Occidental completes the purchase of Anadarko, Berkshire will receive 100,000 shares of preferred stock in Occidental with an eight percent annual dividend. Berkshire will also get a warrant to buy up to 80 million shares of Occidental common stock at $62.50 per share. While expensive for Occidental, chief executive Vicki Hollub has said that the company is “thrilled to have Berkshire Hathaway’s financial support of this exciting opportunity.”
Historically, Berkshire has bought preferred shares from companies that need cash. As a prominent name, Berkshire also provides companies with a seal of approval that can increase shareholder confidence. Financing Occidental’s bid raises the risk for the oil company, which can prompt concern among the shareholders; however, analysts believe that Occidental is now in the lead.
Bill Nygren, the chief investment officer of Harris Associates, holds a three percent stake in Anadarko, said that “at this point you would consider Chevron’s bid dead.” Chevron, however, believes that its deal would provide Anadarko with the best value and most certainty for its shareholders. As Occidental accepted Chevron’s offer in April, the deal entitles Chevron to a $1 billion breakup fee if Anadarko decides not to go through with it.