Berkshire Hathaway intends to add $10 billion to Occidental Petroleum Corporation’s bid as it works to battle competition from Chevron to purchase rival Anadarko Petroleum Corporation. Occidental and Chevron have been involved in the largest oil-industry takeover to take place in many years as they want to control Anadarko’s valued assets in Texas’ massive Permian shale oil field.
Earlier today, Anadarko agreed to begin talks with Occidental regarding its $38 billion cash plus stock bid, in comparison with Chevron’s $33 billion USD offer. Analysts stated that Buffett’s approval of this deal provides support for Occidental’s drive to complete the purchase but comes at quite a cost.
Berkshire’s preferential stock will accumulate dividends at 8% per year, in comparison with approximately 5% on common equity and 4% on term debt, according to a Tudor Pickering Holt analyst. Berkshire Hathaway will receive 100,000 preferred shares along with an approval to buy as many as 80 million Occidental shares priced at $62.50 each in a private offering.
For the Occidental shareholder, this is a relatively pricey cost of financing for the deal despite the fact that it brings about a rather nice media headline of having Berkshire Hathaway being a participant in the prospective financing. The price of Occidental shares has dropped 3.9% to $57.76, while Anadarko shares were last down approximately 1.6% to $71.71. Shares of Chevron were last climbing, up 3.5% to $121.81.
As part of the terms of the merger contract, Chevron will be given four days after being alerted by Anadarko’s board to reply with their counter-offer. Should Anadarko proceed and be sold to Occidental, it will be required to pay a $1 billion deal breaker fee to Chevron.
Occidental and Chevron, which are among the largest oil and gas suppliers in the Permian based on production quantities, claim they would each be the best at extracting more oil from the 240,000-acre area currently owned by Anadarko. Each of two companies currently control land surrounding Anadarko’s properties and anticipate that a deal will increase oil deposits that can could yield supplies for decades to come using a variety of reduced-cost drilling methods.
Berkshire’s financial backing for Occidental’s offer comes after many analysts’ and investors generally thought of Anadarko’s return to the bargaining table as an advancement in Occidental CEO Vicki Hollub’s multi-year attempt to purchase the company. Berkshire’s investment decision is dependent upon Occidental going into an acquisition deal with Anadarko and concluding the proposed purchase.