From The Wall Street Journal
Warren Buffett’s Berkshire Hathaway Inc. agreed to inject $10 billion into Occidental Petroleum Corp.’s bid to acquire Anadarko Petroleum Corp. and fight off Chevron Corp.
Last week, Houston-based Occidental offered to purchase Anadarko for $38 billion, topping the $33 billion that Chevron agreed to pay for the company. The two sides are battling over prized energy assets in the heart of the U.S. oil boom in West Texas and New Mexico.
The backing by Berkshire gives Occidental more ammunition to fight the much-larger Chevron, and it signals that Occidental is prepared to match or exceed any Chevron counteroffer. Occidental now appears to be in a leading position to complete the acquisition, analysts said.
Anadarko representatives were unavailable Tuesday, but the company said Monday that it was considering Occidental’s offer.
A Chevron spokesman said Tuesday that the company believes its agreement offers Anadarko the best value and most certainty to Anadarko shareholders. Chevron’s deal entitles it to receive a $1 billion breakup fee if Anadarko walks away.
Under the Berkshire-Occidental deal, which is contingent on the Occidental completing the purchase of Anadarko, Berkshire will receive 100,000 shares of preferred stock in Occidental with a coupon of 8% a year.
Berkshire also will get a warrant to buy up to 80 million shares of Occidental common stock at a price of $62.50 a share. Shares of Occidental closed Monday at $60.13 and fell 3% to $58.34 Tuesday.
The terms of the Berkshire deal are expensive for Occidental, which cannot choose to redeem the preferred shares for at least 10 years, but Occidental Chief Executive Vicki Hollub has won a key ally in the fight for Anadarko.
“We are thrilled to have Berkshire Hathaway’s financial support of this exciting opportunity,” Ms. Hollub said in prepared remarks.
Occidental hasn’t said how it would use the cash from Berkshire Hathaway, though it could help Occidental alter its bid to avoid a shareholder vote, according to people familiar with the matter. Occidental’s current offer requires signoff from its shareholders in a vote, while Chevron’s doesn’t.
Occidental could use some of Berkshire’s investment to increase the cash portion of its offer and lower the new share issuance below the level that triggers a shareholder vote. However, if Chevron drops out, Occidental could be less likely to alter its bid to avoid such a vote, they said.
The cash also could be used to give Occidental more time to sell assets and relieve any potential debt burden, they said.
Occidental had planned to sell billions of dollars worth of assets to counter rising debt levels stemming from a deal. Berkshire’s investment could remove pressure to quickly sell assets.
Berkshire has a history of buying preferred shares from companies that need cash. During and following the financial crisis, Berkshire acted as a lender of last resort for blue-chip companies including Goldman Sachs Group Inc., General Electric Co. and Bank of America Corp.
In addition to financing, Berkshire offers the companies a seal of approval that can shore up broader shareholder confidence.
Berkshire has struggled in recent years to find ways to invest its growing cash pile. Berkshire held almost $112 billion in cash at year-end, and Mr. Buffett said in an annual letter to shareholders released in February that “prices are sky-high for businesses possessing decent long-term prospects.”
Mr. Buffett is likely to face questions about Berkshire’s cash holdings at the company’s annual meeting in Omaha, Neb., on Saturday. Tens of thousands of shareholders are expected to attend.
Mr. Buffett didn’t immediately respond to a request for comment.
Berkshire’s financing significantly raises the risk for Occidental, prompting concerns among the oil company’s shareholders.
“If this escalates even further, it’s hard to see how the economics really work out, especially given the leveraged position that Occidental will find itself in,” said William Arnold, a former Royal Dutch Shell PLC executive and banking official.
Anadarko shares slipped 0.7% Tuesday to $72.39, while Chevron rose 3.2% to $121.53.
From Bloomberg
Warren Buffett’s Berkshire Hathaway Inc. will invest $10 billion in Occidental Petroleum Corp. to help the oil producer in its $38 billion bid for Anadarko Petroleum Corp.
Berkshire will receive 100,000 shares of preferred Occidental stock that will accrue dividends of 8 percent a year, according to a statement Tuesday. Buffett’s intervention, which is contingent on the deal for Anadarko closing, comes a day after Anadarko agreed to serious negotiations with Occidental despite having accepted a lower offer earlier this month from Chevron Corp.
Occidental’s smaller size and financial resources make its offer riskier for Anadarko shareholders than the $33 billion proposal from Chevron. Occidental went public with its offer last week, creating an unusual bidding war for oil assets, after being rebuffed several times by Anadarko’s board.
“Before this announcement came out, my opinion was that Chevron would have to increase their bid to be competitive,” said Bill Nygren, chief investment officer of Harris Associates, which manages $120 billion and holds about a 3 percent stake in Anadarko. “I think at this point you would consider Chevron’s bid dead.”
Chevron rose 2.9 percent at 10:16 a.m. in New York. Anadarko fell 1 percent and Occidental dropped 3.4 percent.
Anadarko bonds fell on the news. The company’s 5.55 percent notes due 2026 widened 15 basis points to 86 above Treasuries as of 10:08 a.m. New York time. Occidental debt also weakened, with the company’s 2.7 percent notes due 2023 widening as much as 13 basis points in light trading. The company is paying an average 3.8 percent coupon on about $10.4 billion of outstanding debt, according to data compiled by Bloomberg.
Chevron believes its “signed agreement with Anadarko provides the best value and the most certainty to Anadarko’s shareholders,” spokesman Kent Robertson said. A representative for Anadarko didn’t immediately respond to a request for comment.
Buffett has been searching for ways to deploy big chunks of a cash pile that grew to $112 billion at the end of 2018. The Occidental investment would make the company one of Berkshire’s 10 biggest public-company stakes.
The investment gives Berkshire dividend-paying preferred stock and warrants to buy common shares, a structure Buffett has used before in taking stakes in Bank of America Corp. and Goldman Sachs Group Inc.
An Occidental corporate jet was in Omaha, Nebraska — Buffett’s hometown — over the weekend, according to flight-tracking data.
The announcement is “a bit surprising,” since Occidental had previously indicated that it had committed financing for the cash portion of the Anadarko deal, KeyBanc Capital Markets Inc. analyst Leo Mariani said in a note to clients. “This more permanent potential financing is being put in place rather quickly and is more expensive than we would have thought Oxy could have accessed.”
From Reuters
Warren Buffett’s Berkshire Hathaway Inc will put $10 billion behind Occidental Petroleum Corp’s bid as it tries to see off competition from Chevron Corp to buy smaller rival Anadarko Petroleum Corp.
Occidental and Chevron Corp are locked in the biggest oil-industry takeover in years as they eye Anadarko’s prized assets in West Texas’ huge Permian shale oil field.
Anadarko on Monday agreed to start negotiations with Occidental on its $38 billion cash-and-stock bid, compared with Chevron’s offer of $33 billion.
Analysts said Buffett’s seal of approval supports Occidental’s push to get the deal done but comes at a high cost.
Berkshire’s preferred stock will accrue dividends at 8 percent per annum, compared with about 5 percent yield on common equity and 4 percent on term debt, Tudor Pickering Holt analyst Matthew Portillo said.
Berkshire Hathaway will get 100,000 preferred shares and a warrant to purchase up to 80 million shares of Occidental at $62.50 apiece in a private offering.
“For Occidental shareholder, our view is this is a fairly expensive cost of financing for the transaction even though it carries a kind of nice headline of having Berkshire Hathaway participate in the potential financing here.”
Shares of Occidental were down 3.9 percent at $57.76, while those in Anadarko were down about 1.6 percent at $71.71. Chevron shares were up 3.5 percent at $121.81.
Under the terms of the merger agreement, Chevron has four days after being notified by Anadarko’s board to respond with a counter-offer. If Anadarko proceeds with a sale to Occidental, it will have to pay Chevron a $1 billion deal breakup fee.
Occidental and Chevron, two of the largest oil and gas producers in the Permian by production volumes, argue they can best squeeze more oil from Anadarko’s 240,000 acres in the area.
The two companies control land adjacent to Anadarko’s properties and expect a deal will add deposits that can produce supplies for decades using low-cost drilling techniques.
Berkshire’s backing for Occidental’s bid comes after analysts’ and investors widely perceived Anadarko’s return to negotiation as a breakthrough in Occidental Chief Executive Vicki Hollub’s two-year effort to buy the company.
Berkshire’s investment is contingent upon Occidental entering into a deal with Anadarko and completing the proposed acquisition.
