Berkshire Hathaway to pay $9.7 billion for OxyChem, potentially Warren Buffett's last big deal

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OMAHA, Neb. (AP) — Berkshire Hathaway is buying Occidental Petroleum's chemical division for $9.7 billion in what may be the last big acquisition involving the consummate dealmaker, Warren Buffett.

Buffett wasn’t mentioned anywhere in materials released by Berkshire Hathaway discussing the deal Thursday, potentially signaling a passing of the torch to Vice Chair Greg Abel, to whom Buffett will hand the CEO title in January. But given the relationship that Buffett has with Occidental CEO Vicki Hollub, who he has praised ever since helping her with an acquisition back in 2019, and the fact that he likes to be involved anytime Berkshire spends more than $1 billion dollars, he certainly had a role.

Even after the transition, Buffett will remain chairman at Berkshire and will still be involved in deciding how to spend the conglomerate’s colossal pile of more than $344 billion cash.

Berkshire’s cash reserves have been growing for years because Buffett has been unable to find any major acquisitions at attractive prices since completing the $11.6 billion acquisition of Alleghany Insurance in 2022. Prices for big acquisitions have been driven higher in recent years by the entry of more hedge funds in the market.

The OxyChem deal is sizeable, but it still uses less than 3% of Berkshire's cash and likely isn't big enough to make a significant difference in the conglomerate's bottom line. Investors seemed underwhelmed with the deal with Berkshire's shares trading down slightly and Occidental's shares dropping more than 7% Thursday after it was announced.

OxyChem makes chlorine for water treatment, vinyl chloride for plastics and calcium chloride that’s used to treat icy roads along with an assortment of other chemicals. It will fit nicely alongside Lubrizol, which Buffett bought in 2011 for $9 billion, but Berkshire typically doesn't consolidate the operations of the companies it buys.

“Berkshire is acquiring a robust portfolio of operating assets, supported by an accomplished team,” Abel said in a prepared statement. “We look forward to welcoming OxyChem as an operating subsidiary within Berkshire."

Edward Jones analyst Jim Shanahan said it makes sense to let Abel take the lead on this as Berkshire prepares for the transition. But investors are really watching for what Abel might do differently after he takes over and what kind of deals he can land on his own.

“It’ll be interesting to see what kind of deals he does, how they’re similar, how they’re different and how he talks about the opportunities,” Shanahan said.

It's possible Abel, who is a much more hands-on manager than Buffett, might do more to get Berkshire companies working together and maybe even consolidating some things, Shanahan said. But that might be a break with tradition because Buffett always promised business owners that he just wanted to buy good businesses and then largely leave them alone other than requiring them to send their cash to Omaha so he could reinvest it.

OxyChem generated $213 million in pretax earnings for Occidental in the second quarter, though that is down from last year when it generated nearly $300 million for the company. This year, Occidental has been selling off some of its assets in the Permian Basin to generate $950 million to pay down debt. Since it completed the CrownRock acquisition in December 2023, Occidental has sold off roughly $4 billion worth of assets to help it pay down $7.5 billion in debt. This OxyChem deal will accelerate that.

Occidental expects to use $6.5 billion of proceeds from the Berkshire deal to lower debt and achieve the target of principal debt below $15 billion set following the announcement of its CrownRock acquisition. Occidental will retain all the legacy environmental liabilities for OxyChem.

Berkshire holds more than 28% of Occidental’s stock and has warrants to buy another 83,911,942.38 shares in the major oil and gas producer for $59.586 per share. And Berkshire also has about $8.5 billion worth of preferred Occidental shares that it picked up in 2019 when it helped finance the oil producer’s purchase of Anadarko that Occidental has been paying 8% dividends on every year.

Buffett had previously told Berkshire investors that he wouldn’t sell off the Occidental stake and he has been periodically buying more shares, but he also told shareholders in 2023 that he had no plans to buy all of Occidental.

Berkshire owns an eclectic assortment of dozens of companies, including Geico and several other insurers, BNSF railroad, a portfolio of major utilities and some well-known brands like Dairy Queen and See’s Candy. Buffett has built up the conglomerate over the past 60 years. In addition to owning companies outright, Berkshire holds stocks worth more than $250 billion, including large stakes in Apple, Coca-Cola, Bank of America and American Express.

The OxyChem deal is expected to close in the fourth quarter of this year.

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AP Business Writer Michelle Chapman contributed to this report.