Prime Highlights:
- Berkshire Hathaway’s $10 billion acquisition of OxyChem is seen as a strategic win, benefiting both Berkshire and its nearly 30% stake in Occidental.
- The deal strengthens Occidental’s financial position by allowing it to reduce debt while letting OxyChem operate independently under Berkshire.
Key Facts:
- The $9.7 billion all-cash deal is Berkshire’s largest since its 2022 purchase of Alleghany.
- Occidental plans to use $6.5 billion from the sale to pay down debt, aiming to bring its principal debt below $15 billion.
Key Background:
Warren Buffett’s Berkshire Hathaway has made a major strategic move by acquiring the chemicals business of Occidental Petroleum, OxyChem, for nearly $10 billion. Analysts say the deal benefits both Berkshire and its nearly 30% stake in Occidental. This might be Buffett’s final major purchase before he steps down in December.
OxyChem will operate independently under Berkshire, generating steady revenue through its chlor-alkali business, including PVC resin used in piping, construction, and medical equipment. Doug Leggate, an energy analyst at Wolfe Research, said OxyChem is a stable, specialized business with strong pricing and suits Berkshire’s investments well.
The $9.7 billion cash purchase is Berkshire’s biggest deal since buying Alleghany in 2022. Lately, the company has been selling parts of its investments while keeping almost $350 billion in cash. Analysts highlight OxyChem as a potential cash cow that could benefit from the housing market if interest rates continue to fall.
Greg Abel, Berkshire’s incoming CEO, welcomed the deal and the Oxy team, saying the acquisition adds strong assets to Berkshire and will be supported by a skilled team.
Occidental will use $6.5 billion from the sale to pay down debt, aiming to lower its main debt below the $15 billion target set after last year’s $12 billion CrownRock purchase. OxyChem contributes nearly 20% of Occidental’s pre-tax income, generating over $1 billion annually. CEO Vicki Hollub said the deal will help Occidental focus on its main oil and gas business and improve its financial health.
Berkshire Hathaway and Occidental have worked closely since 2019, when Buffett provided $10 billion to support Occidental’s purchase of Anadarko Petroleum. This new deal continues their strong partnership.
Even though the news is good, Occidental’s stock fell 7% after the announcement because investors had expected the deal. Analysts still think it’s a smart move for both companies.
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