Berkshire Hathaway's $9. 7 Billion Move: What's Next?
Berkshire Hathaway is making waves with a $9.7 billion acquisition of OxyChem, a chemical division of Occidental Petroleum. This deal might be one of the last big moves by Warren Buffett, the legendary dealmaker who has been at the helm for decades.
Buffett's Involvement
Buffett's involvement in this deal is notable, even though he wasn't mentioned in the official press release. His close relationship with Occidental's CEO, Vicki Hollub, and his habit of overseeing large investments suggest he had a hand in it. Even after stepping down as CEO in January, Buffett will remain as chairman and will still have a say in how Berkshire's massive cash reserves are used.
Berkshire's Cash Pile
Berkshire's cash pile has been growing, but finding attractive deals has been tough. The entry of more hedge funds has driven up prices for big acquisitions. The OxyChem deal, while sizeable, only uses a small fraction of Berkshire's cash and might not significantly impact the conglomerate's bottom line.
OxyChem's Role
OxyChem produces a variety of chemicals, including chlorine for water treatment and vinyl chloride for plastics. It will join Lubrizol, another chemical company Berkshire acquired in 2011. Greg Abel, who will take over as CEO, sees this as a good fit. Investors, however, seemed underwhelmed, with Berkshire's shares dipping slightly and Occidental's shares dropping more than 7%.
Occidental's Strategy
The deal also highlights Occidental's strategy to pay down debt. OxyChem has been a profitable division, but earnings have dipped recently. Occidental plans to use most of the proceeds from the sale to reduce debt and meet its financial targets.
Berkshire's Stake in Occidental
Berkshire's stake in Occidental is substantial, with warrants to buy more shares and a significant holding in preferred stock. Buffett has been clear that he won't sell his stake but also has no plans to buy the entire company.
The Future Under Greg Abel
As Berkshire prepares for a new era under Greg Abel, investors are curious about the direction he will take. Will he consolidate operations and encourage more collaboration among Berkshire's diverse portfolio of companies? Only time will tell.