Warren Buffett gets approval to buy up to half of Occidental Petroleum, boosting shares

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Warren Buffett during a press conference during the general meeting of shareholders of Berkshire Hathaway, April 30, 2022.

CNBC

Warren Buffett’s Berkshire Hathaway received regulatory approval on Friday to buy up to 50% of oil giant Occidental Petroleum.

Occidental shares jumped 10% on the news to over $70 apiece, pushing their 2022 gains over 140%.

On July 11, Berkshire filed an application with the Federal Energy Regulatory Commission to purchase more common stock of the oil company in secondary market transactions. The conglomerate argued that a maximum stake of 50% would not harm competition or diminish regulatory authority.

Carlos Clay, acting director of the Electric Power Regulation Division, granted the clearance on Friday, saying the clearance was “consistent with the public interest.”

The conglomerate has already drastically increased its stake in Occidental this year. Berkshire currently owns 188.5 million shares of Occidental, a 20.2% position. It passed a key threshold where Berkshire could book part of the oil company’s profits with its own, potentially adding billions of dollars in profit.

Berkshire also owns $10 billion of preferred stock in Occidental and has warrants to buy an additional 83.9 million common shares for $5 billion, or $59.62 each. The warrants were obtained as part of the company’s 2019 deal that helped fund Occidental’s purchase of Anadarko. The stake would increase to nearly 27% if Berkshire exercises these warrants.

Acquire the whole company?

Friday’s news fueled speculation that Buffett would eventually be interested in acquiring the entire company after increasing his stake at a low price.

“He’ll probably keep buying as much as he can get below $70 or $75. If you own 30% or 40% and want to buy it back at $95 or $100, you’ve saved a lot of money,” he said. said Cole Smead, chairman of Smead Capital Management and shareholder of Berkshire. “This stock trades like a casino. The market gives it all the stock it wants.”

David Kass, professor of finance at the University of Maryland’s Robert H. Smith School of Business, said an acquisition is likely.

“I think it’s likely that Buffett will eventually buy the whole thing. The 50% limit may have been set to receive FERC approval for a non-controlling interest,” Kass said. “He clearly intends to purchase additional shares. So far, his maximum purchase price has been $60.37 per share.”

Some have speculated that Berkshire and Occidental had been in communication about the potential decision to increase the stake to as much as 50%.

“He always said he would only do friendly deals, so maybe he would have agreed with the OXY board on that limit,” said Bill Stone, CIO of The Glenview Trust Company. and shareholder of Berkshire.

“Only Made Sense”

The “Oracle of Omaha” began buying the stock after reading Occidental’s annual report and gaining confidence in the company’s growth and leadership.

“What Vicki Hollub was saying just made sense. And I decided that was a good place to put Berkshire’s money,” Buffett said of Occidental CEO at annual meeting from Berkshire in April.

“Vicki was saying what the business had been through and where it was now and what it planned to do with the money,” he added.

Occidental was the best performing stock in the S&P 500, benefiting from soaring oil prices.

Buffett’s growing bet on Occidental has inspired a legion of small investors to follow suit, making it a favorite retail stock this year, according to data from VandaTrack.

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