Berkshire Hathaway has announced its acquisition of Occidental Petroleum’s chemicals unit, OxyChem, for $9.7 billion. This transaction marks a significant divestment for Occidental, aimed at reducing its substantial debt, which stood at $23.34 billion by June 2023.
Berkshire Hathaway Expands Chemical Portfolio
This move highlights Berkshire Hathaway’s strategy to expand its investments in the chemical sector. The purchase of OxyChem would be the largest acquisition for Berkshire since its $11.6 billion buyout of Alleghany Corporation in 2022.
Key Transaction Details
- Purchase Price: $9.7 billion
- Revenue Generation: OxyChem generated $2.42 billion in revenue during the first half of the year.
- Debt Reduction: Occidental aims to use $6.5 billion from the sale to pay off debt, realigning its financial strategy.
The sale is reflective of Occidental’s broader effort to manage its financial obligations following costly acquisitions. Notably, the company spent $55 billion on Anadarko Petroleum, leading to significant debt accumulation.
Market Implications
Following the announcement, Occidental’s shares fell over 6% during morning trading. Analysts express concerns regarding future cash flow growth due to the sale of OxyChem, which was expected to contribute meaningfully to the company’s expansion efforts.
Scotiabank analyst Paul Cheng remarked that the sale price seemed undervalued compared to his previous estimate of $12 billion for the chemicals division. This deal comes as Berkshire Hathaway continues to solidify its position as Occidental’s largest shareholder, having begun acquiring a stake in early 2022.
Future Outlook for Occidental Petroleum
As Occidental refocuses on its core oil and gas operations, which accounted for 75% of their total earnings last year, CEO Vicki Hollub emphasized that this sale unlocks a promising 20-plus year resource potential in oil and gas. The deal is expected to close in the fourth quarter of 2023.
The divestment of OxyChem not only serves to mitigate Occidental’s debt but also indicates a strategic pivot towards its primary business functions. As Berkshire Hathaway deepens its ties with Occidental, the future landscape of the energy market remains dynamic.
