Berkshire Hathaway divested from Warren Buffett to buy the equivalent of half of Occidental’s shares

In a regulatory filing Friday, the Federal Energy Regulatory Commission said that Berkshire Hathaway asked for and got her permission To buy up to 50% of the shares of the excavator. Public filings showed that Berkshire has been loading up on Occidental shares this year, amassing nearly 20% of the company’s shares, leaving many analysts speculating whether Buffett will seek control of the company, one of the largest US oil producers.

Occidental shares jumped to lead stock gains among the S&P 500 on Friday, rising 9.9% after the decision was published. The company’s stock is up about 146% this year, the highest in the S&P 500 stock index, which is down 11% this year.

Berkshire requested the mandate on July 11, and said at the time it owned approximately 18.72% of Occidental’s outstanding common stock, according to the federal ruling. Berkshire has since added shares, and earlier this month said in a securities filing that it owns roughly 20% of Occidental’s common stock. The filings also show that Berkshire also has warrants to buy another large bullion of Occidental common stock as well as $10 billion of preferred stock that pays Berkshire about $800 million annually.

“We have concluded that the proposed transaction is in the public interest,” Carlos D. Clay of FERC’s Office of Energy Market Regulatory wrote in the filing.

An Occidental spokesperson confirmed that Berkshire can now buy up to 50% of the common stock and did not comment further. A Berkshire Hathaway representative did not respond to a request for comment.

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Mr. Buffett has invested billions in renewables such as wind farm projects through his Berkshire power unit, and has also added oil companies to the holding company’s portfolio in recent years.

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It is now one of the largest equity investments in Berkshire.

Occidental profited from higher oil prices, generating $3.7 billion in the second quarter. The earnings represent a major turnaround for the company, which lost about $14.8 billion in 2020 after the global pandemic caused demand for oil. Buying Berkshire shares, as well as buying by several investors who follow Buffett’s moves, helped lift Occidental shares to the head of a broad recovery in energy stocks.

Occidental A poorly timed $38 billion deal to acquire rival Anadarko In 2019, Corp. The company is heavily indebted, which has put it in a precarious position with low oil prices during the pandemic. CEO Vicki Hollub has made major spending cuts over the past two years, moved to rein in growth and focused on using cash to pay down debt.

The company has repaid $8 billion in debt this year to $22 billion, down from about $36 billion a year ago, according to the company and analysts. Neil Dingman, analyst at Trust Securities, said Occidental’s pursuit of investment rank and cash-generating capabilities made it an attractive target for Mr. Buffett. “It’s a great kind of hedge against a lot of his other businesses for having such a high free cash flow business,” he said.

Occidental profited from higher oil prices, generating $3.7 billion in the second quarter.


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Reuters Staff / Reuters

Mr. Buffett has made no secret of his admiration for Ms. Hollub, calling her one of the best CEOs in the business. in 2019, He got $10 billion in preferred stock To help the company pay for the Anadarko deal.

“What Vicki Holub said was just meaningless,” Buffett said at the annual Berkshire shareholder meeting in April. He added that Occidental seemed “a good place to put Berkshire’s money”.

Mr. Buffett had to reach out to the market because power plants controlled by both Occidental and Berkshire Hathaway feed the same grid in Louisiana. Occidental owns a power plant in Taft, Los Angeles, that feeds its adjacent chemical plant. The remaining power is sold on the local grid, which is also fed by Berkshire Hathaway power plants.

FERC ruled that because the Occidental plant represented only 0.48% of the area’s grid-connected capacity, the combination with Berkshire “would have no adverse impact on competition” in the local electricity market. Mr. Buffett had to ask, before cementing Berkshire’s stake in the West.

In recent years, Occidental I got into renewables with the Oxy Low Carbon Ventures unit. This new focus aligns with Berkshire’s own investment in renewable energy and puts Mr Buffett’s company in a position to benefit from tax breaks, said Bill Smead, chief investment officer at Smead Capital Management.

“We see the Berkshire recording as a vote of confidence in oil’s macroeconomics and value proposition in energy stocks,” said Kevin McCurdy, managing director at investment firm Pickering Energy Partners.

write to Benoît Morenne at [email protected] and Ryan Dezember at [email protected]

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