Buffett's $9.7B OxyChem Deal Months Before Retirement Safeguards His Sinking Oxy Common Stock Position

On Thursday, Warren Buffett's Berkshire Hathaway (NYSE:BRK.A/BRK.B) said it will acquire Occidental Petroleum's (NYSE:OXY) petrochem unit OxyChem in a $9.7 billion (£7.2 billion) cash deal. OxyChem manufactures water treatment, health care, and other commercial chemicals. It comes at a time when Berkshire is sitting on $344 billion (£256 billion) cash pile.

Occidental said it will use $6.5 billion (£4.8 billion) of the proceeds to reduce debt and cut interest payments by almost 30%, which will enable the company to resume buying back stock.

'The problem has been getting our debt down faster, so this resolves the one outstanding issue that I think will now unlock our stock and allow shareholders to feel more comfortable, hopefully, to add to their positions and others to come in,' Occidental CEO Vicki Hollub told CNBC.

Separately, she stated in a press release that the deal will improve the company's financial position and 'catalyse' a major resource opportunity it has been building in its oil and gas business for the last decade. Oxy's stock price fell 7.3% yesterday.

Lower debt will enable Oxy to repair its balance sheet, which was impacted by its ill-timed acquisition of Anadarko Petroleum in 2019, a deal enabled by the Oracle of Omaha himself. Berkshire offered $10 billion (£7.4 billion) in funding for Oxy's takeover of Anadarko in exchange for preferred stock paying 8% dividend as well as warrants.

However, Berkshire also started buying Oxy's common stock in 2022 as oil prices surged amid the Russia-Ukraine war. Berkshire held a 28.2% stake in the company as of June-end. However, that common stock position is now underwater. Oxy's adjusted net income in 2025 is expected to be lower than in 2018, the year before it acquired Anadarko.

While the value of Berkshire's stake in Oxy's common stock may be declining, it is more than offset by gains on the preferred stock the company received for funding the Anadarko deal. The acquisition of the chemicals business helps Oxy lower its debt, simplify itself as a more straightforward upstream oil and gas company, and bolster its balance sheet, which could eventually make it a more lucrative takeover target in the future. These developments could ease the burden on Oxy shares, which could offer Berkshire an opportunity to recoup losses on its own common stock position and potentially even get its warrants into the money.

'Berkshire is acquiring a robust portfolio of operating assets, supported by an accomplished team,' said Greg Abel, vice chairman of non-insurance operations at Berkshire Hathaway. 'We look forward to welcoming OxyChem as an operating subsidiary within Berkshire. We commend Vicki and the Occidental team for their commitment to Occidental's long-term financial stability, as demonstrated by their plan to use proceeds to reinforce the company's balance sheet.'

Hollub also noted that as Occidental grows its cash position, it will start to redeem Berkshire Hathaway's preferred stock in 2029.

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