Berkshire Pledges $10B To Help Occidental Bid For Anadarko

Update: Chevron shares ticked higher after the company released a statement saying its current offer for Anadarko offers the 'best value' (well, for Chevron) and provides the most certainty.

  • *CHEVRON: OUR ANADARKO OFFER PROVIDES BEST VALUE, MOST CERTAINTY

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One stock analyst revealed on Monday that flight tracking data showed Occidental Petroleum's corporate jet had flown to Omaha over the weekend, prompting them to speculate that Oxy might be trying to bring Warren Buffett into the deal to help finance its takeover of Anadarko Petroleum.

Buffett

As it so happens, that assessment was absolutely spot on.

According to CNBC, a day after Anadarko said it was leaning toward Oxy's higher bid, Buffett has confirmed that Berkshire is getting involved in the bidding war between Oxy and Chevron. Berkshire has committed to invest $10 billion in Occidental Petroleum contingent on the company completing the takeover of Anadarko.

Buffett's backing will undoubtedly strengthen Oxy's hand as its squares off with the much larger Chevron, which could still up its offer for Anadarko. With Buffett backing Oxy, it's more likely that Chevron will walk away from the deal with the $1 billion breakup fee it would be owed by Anadarko. Rumor has it that Chevron was unlikely to raise  its bid even before Buffett became involved. Though Chevron still has the financial heft to see the deal through if it commits to doing so.

Last week, Oxy topped Chevron's $33 billion buyout price with a $55 billion cash-and-stock offer of its own. Anadarko's most valuable assets include a quarter of a million acres of shale oil field in the Permian basin, along with assets in the Gulf of Mexico and a natural gas project in Mozambique.

Here’s how the deal is structured (Per CNBC):

  • Berkshire will receive 100,000 shares of cumulative perpetual preferred stock with a value of $100,000 a share.
  • The conglomerate also gets a warrant to purchase up to 80 million shares of Occidental at an exercise price of $62.50 a share.
  • The preferred stock will accrue dividends at 8% annually.

Oxy CEO Vicki Hollub, who had pledged to sell off some $15 billion in assets to help finance the acquisition, said she was "thrilled" to have Buffett on board.

After Berkshire recently poured cold water on reports that it was planning to acquire PG&E, Buffett's decision to back Occidental will give the longtime Berkshire CEO and his partner Charlie Munger something to talk about during the Berkshire shareholder meeting this weekend aside from the company's massive cash pile.

Read the press release below:

HOUSTON, April 30, 2019 (GLOBE NEWSWIRE) -- Occidental Petroleum Corporation (“Occidental” or “the Company”) (NYSE: OXY) announced today that, in connection with the financing of Occidental’s proposal to acquire Anadarko Petroleum Corporation (“Anadarko”) (NYSE: APC), Berkshire Hathaway, Inc. has committed to invest a total of $10 billion in Occidental. The investment is contingent upon Occidental entering into and completing its proposed acquisition of Anadarko.

Berkshire Hathaway will receive 100,000 shares of Cumulative Perpetual Preferred Stock with a liquidation value of $100,000 per share, together with a warrant to purchase up to 80.0 million shares of Occidental common stock at an exercise price of $62.50 per share. The preferred stock will accrue dividends at 8% per annum (or with respect to dividends that are accrued and unpaid, 9%).

On April 24, Occidental made a proposal to acquire Anadarko for $76.00 per share, comprised of $38.00 in cash and 0.6094 shares of Occidental common stock per Anadarko share. On April 29, Anadarko announced that its Board of Directors had determined that the proposal from Occidental could reasonably be expected to result in a Superior Proposal under its existing merger agreement and that it would engage with Occidental.

"We have long believed that Occidental is uniquely positioned to generate compelling value from Anadarko’s highly complementary asset portfolio. We are thrilled to have Berkshire Hathaway’s financial support of this exciting opportunity," said Vicki Hollub, President and Chief Executive Officer of Occidental. "We look forward to engaging with Anadarko’s Board of Directors to deliver this superior transaction to our respective shareholders."

The preferred stock to be issued to Berkshire Hathaway will be redeemable for cash (in whole or in part) at the option of Occidental commencing on the tenth anniversary of issuance at a redemption price equal to 105% of the liquidation preference plus accumulated and unpaid dividends, if any. The preferred stock will also be mandatorily redeemable for cash (in whole or in part) upon certain specified capital return events. Dividends will be paid in cash or, at Occidental’s option, in shares of Occidental common stock. The warrant to be issued with the preferred stock may be exercised in whole or in part and from time to time, until one year after the redemption of the preferred stock.

The preferred stock and the warrant are being issued and sold in a private offering.