• Berkshire Hathaway buys more Occidental Petroleum shares
• Over half a billion US dollars for share increases
• Latest takeover deal in view
The oil company Occidental Petroleum is one of Warren Buffett’s favorite stocks. After joining through his holding company Berkshire Hathaway in 2019, the star investor gradually expanded his stake in the company. In the third quarter of 2023, Occidental was already the 6th largest Buffett holding – only competitor Chevron, Buffett’s favorite stock Coca-Cola, American Express, Bank of America and the tech giant Apple had a larger share of Buffett’s portfolio.
Increased again – with the option for more
It remains to be seen whether this placement will remain at the end of the fourth quarter, as Berkshire Hathaway again acquired a large block of shares from Occidental last week. According to a filing with the US Securities and Exchange Commission (SEC), the Buffett financial vehicle acquired around 10.5 million Occidental shares worth $588.7 million. This increases Berkshire’s stake in the US oil company to 27 percent, and the company also owns preferred shares and shares Warrants, which entitles Berkshire to purchase an additional 83.8 million Occidental shares for $4.7 billion, or $56.62 apiece. If Buffett exercises all options, the financial stake would increase to 33 percent.
That’s what’s behind the deal
There are probably solid reasons why Warren Buffett increased his Occidental holding in December of all days, which go beyond the fact that the star investor is betting on the oil industry. The oil company recently announced the takeover of CrownRock, a smaller competitor. Occidental wants to put twelve billion US dollars on the table for the takeover – a step that veteran Buffett apparently supports if one interprets his recent increase in shares accordingly.
Occidental shareholders still remember the oil company’s previous attempt to strengthen itself by taking over a rival: the purchase of Anadarko Petroleum in 2019 was also supported by Warren Buffett, who at the time was trading with Berkshire for $10 billion in perpetual preferred shares from Occidental and secured a guaranteed dividend.
However, analysts and market experts rated the transaction in 2019 as anything but positive. Carl Icahn, among others, wanted to torpedo the takeover and said in a letter to Occidental shareholders that Anadarko was “massively overvalued” and that he had rarely seen a worse deal.
Despite this, Occidental is also planning a similar takeover strategy for CrownRock: Once again, the buyer wants to take over the debts of its takeover target, which rating agencies are now interpreting less dramatically. Both Fitch and Moody’s affirmed their investment grade ratings on Occidental following news of the takeover plans.
Oil company on the stock exchange with some catching up to do
Occidental shares are currently comparatively cheap: In the last three months, the share price has lost more than eleven percent, and since January it has fallen by around six percent, while the broad US stock market has made strong gains at the same time. Buffett seems to continue to bet on a recovery in the oil sector.
Editorial team finanzen.ch