Warren Buffett’s Berkshire Hathaway has found an outlet for some of his cash by committing $US10 billion to Occidental Petroleum Corp’s $US38 billion cash-and-stock bid for Anadarko Petroleum Corp.
Oil major Chevron originally bid $US33 billion in cash and shares for Anadarko, which holds prime acreage in the Permian Basin in Texas, as well Gulf of Mexico oil prospects and a huge gas prospect in East Africa.
Occidental kicked off the battle with an unofficial approach several weeks ago that didn’t go anywhere because of problems with the structure of its offer. Chevron then came in over the top with what it thought was a blockbuster $US33 billion ($US48 billion including Anadarko’s debt). Occidental then returned late last week with its higher offer.
As a result, Anadarko on Monday agreed to start talking to Occidental, saying its bid could potentially be superior to Chevron’s existing deal to buy Anadarko for $33 billion in cash and stock.
Berkshire’s cash gives Occidental the option to fund and even increase its proposal. Anadarko has previously expressed reservations about the risk of Occidental having to get any deal voted through by its own shareholders. That’s why the original approach from Occidental went nowhere.
Occidental could now use the majority of the Berkshire investment to add cash to its bid and remove the requirement for a vote if it wants to.
Berkshire’s investment depends on Occidental taking over Anadarko. It will enable Occidental to repay some of the debt being taken on to finance the deal’s cash portion or replace the$US10 to $US15 billion in asset sales that Occidental has planned to make in the two years after completing the deal.
As usual Buffett’s help doesn’t come cheap.
Berkshire Hathaway will get 100,000 preferred shares and a warrant to purchase up to 80 million shares of Occidental at $US62.50 apiece in a private offering. Occidental shares fell 2.5% to $US58.72 on Tuesday.
The preferred stock will cost 8% a year (giving Berkshire annual payments of $US800 million), double corporate debt rates for deals like this, according to US analysts.
Reuters says Occidental and Chevron are two of the largest oil and gas producers in the Permian by production and they are interested in Anadarko’s 240,000 acres (97,120 hectares) in the basin.
The last time Buffett was involved in a contested takeover was in 2016 which failed. Buffett in the past has made multi-billion investments in some of America’s biggest banks (Goldman Sachs, Bank of America) to help support them during the GFC.
