6 Warren Buffett gurus say his latest deal is a winner —and might not be his last as Berkshire Hathaway CEO
News Summary
Warren Buffett's followers are celebrating his latest deal in his final quarter as Berkshire Hathaway CEO, and they suggest it might not be his last. Berkshire Hathaway announced on Thursday that it would pay $9.7 billion in cash for Occidental Petroleum's chemicals business, OxyChem, marking its largest acquisition since the $12 billion purchase of insurer Alleghany in 2022. David Kass, a finance professor and long-time Buffett blogger, noted that the 7% slump in Occidental stock after the deal news indicated Berkshire secured "extremely favorable terms." Analyst Brett Gardner called it a "win-win," with Berkshire getting a good price and Occidental bolstering its balance sheet. Alex Morris, founder of investment research service TSOH, stated that Berkshire is paying about eight times OxyChem's trailing 10-year average pre-tax earnings, which is a "good price" if the trend holds. He believes Occidental CEO Vicki Hollub is likely selling OxyChem to accelerate debt repayment and resume stock buybacks. Paul Lountzis, president of Lountzis Asset Management, described it as a "solid deal" for Berkshire, buying at "perhaps a low point in long-term earning power."
Background
Berkshire Hathaway has a significant history with Occidental Petroleum. In 2019, Berkshire provided Occidental with $10 billion to help finance its $55 billion takeover of Anadarko Petroleum, receiving preferred stock and warrants in return. Starting in 2022, Berkshire began purchasing Occidental's common stock, increasing its ownership stake to 28% by June of this year. Occidental has accumulated substantial debt in recent years due to its acquisitions of Anadarko and Crown Rock. The sale of its OxyChem business is intended to reduce debt by $6.5 billion, aiming to bring its total debt below $15 billion. In contrast, Berkshire was sitting on a record $344 billion cash pile at the end of June. Warren Buffett, who has served as Berkshire Hathaway's CEO since 1970, is set to step down at the end of this year, with non-insurance chief Greg Abel succeeding him. Buffett will remain as chairman.
In-Depth AI Insights
Given that the OxyChem acquisition is described as having "classic Berkshire in substance, novel Berkshire in style," how does this deal foreshadow Berkshire's future acquisition strategy under Greg Abel? - This transaction may signal the beginning of Berkshire's increased focus on "carve-out" strategies under Abel, acquiring specific business units from larger companies rather than traditionally pursuing large-scale takeovers of entire publicly traded firms. This reflects Abel's characteristic as an "operator par excellence," potentially favoring integration and optimization of existing businesses. - Unlike Buffett's preference for wholly owning or controlling entire companies, Abel might increasingly leverage Berkshire's vast cash reserves for more tactical acquisitions of specific high-quality assets to bolster existing portfolio companies or complement Berkshire's own operations, especially in an environment where asset valuations are generally high, making it difficult to find "cheap" whole-company acquisitions. - This "bridge" transaction style, which upholds Buffett's investment principles (like "simplicity, durability, and mutual benefit") while introducing novel execution, suggests an evolving investment paradigm at Berkshire to adapt to new market conditions and management's strengths, though its core value investing philosophy is unlikely to change. Beyond the immediate motivation of debt reduction, what might be Occidental Petroleum's deeper strategic intent in selling OxyChem, and what does this imply for its long-term investors? - The sale of a non-core but stable chemicals business likely indicates Occidental is deepening its focus as a pure-play oil and gas exploration and production company, aiming for a "cleaner story" to attract investors more dedicated to the energy sector. - While OxyChem provided stable cash flows, its profitability was influenced by oil price volatility. Divesting this business can reduce the company's cyclical exposure and, by lowering debt, enhance financial flexibility. This allows Occidental to more strategically navigate the energy transition and capital allocation, for example, prioritizing share buybacks or investing when opportunities arise in the oil and gas market. - For investors, if Occidental effectively manages its leaner balance sheet and utilizes improved cash flow for shareholder returns or high-value oil and gas investments, this could lead to higher returns on capital and a clearer investment thesis, though it might reduce the diversification of its revenue streams. Considering Berkshire's record cash pile and Buffett's stated inclination to "sit and wait" for bargains, contrasted with an expert's mention of potential large-scale railroad mergers, what is the likelihood of Berkshire making a "final hurrah" type of significant deal within the next year? - While Buffett himself might prefer to "sit and wait," Greg Abel as the new CEO likely has greater autonomy in investment decisions and could be empowered to deploy Berkshire's vast cash reserves when opportune. The article suggests Abel won't let the "best capital allocator of all time sit on the sidelines," implying Buffett could still offer strategic guidance. - The generally high market valuations indeed limit Berkshire's opportunities for large "bargain" acquisitions. However, if major industry consolidation opportunities arise, such as the proposed merger between Union Pacific and Norfolk Southern, and regulatory hurdles are manageable, it's not impossible for Berkshire's BNSF Railway to be involved. - The OxyChem deal itself, while substantial, might be more of a signal of Abel's "first" rather than Buffett's true "swan song." If a "game-changing" merger opportunity arises, particularly in regulated oligopolistic sectors like utilities or infrastructure, Berkshire still has the capacity and incentive to act, but such a move would be highly opportunistic.