Shares in Occidental Petroleum (OXY) slumped over 6% today despite confirmation that dealmaker Warren Buffett’s Berkshire Hathaway ($BRK.B) group was shelling out $9.7 billion to buy its chemical division.
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OxyChem makes things like 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 alongside Lubrizol, which Buffett bought in 2011 for $9 billion.
“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.
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.
Since it completed its 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. Indeed, it said it would use $6.5 billion of the transaction funds to reduce its current overall debt to below $15 billion.
The deal is expected to close in the fourth quarter of this year.
Buffett’s Bow Out
Buffett’s strategy often centers on acquiring good businesses when earnings are down. Buying OxyChem now gives Berkshire exposure to a cyclical business at a price that looks attractive relative to its long-term potential. This is Berkshire’s largest deal since the $13 billion purchase of Alleghany in 2022.
It comes as Berkshire sits on a record cash pile of $344 billion.
Berkshire already owns a 27% equity stake in Occidental, worth about $12 billion, along with $8.5 billion of preferred stock and warrants to buy 84 million shares at just under $60. Adding OxyChem deepens Buffett’s ties to the Houston-based energy group.
The new acquisition also comes months before Buffett, age 95, is due to step down as Berkshire’s CEO at the end of this year, although he will remain chairman of the company’s board of directors.
Is OXY a Good Stock to Buy Now?
On TipRanks, OXY has a Hold consensus based on 2 Buy, 14 Hold and 1 Sell ratings. Its highest price target is $64. OXY stock’s consensus price target is $50, implying a 11.43% upside.
