What is the story about?
What's Happening?
Berkshire Hathaway has announced the acquisition of Occidental Petroleum's chemical division, OxyChem, for $9.7 billion. This transaction is potentially the last major acquisition involving Warren Buffett, as he prepares to hand over the CEO title to Vice Chair Greg Abel in January. Despite Buffett's absence from the official announcement, his relationship with Occidental CEO Vicki Hollub suggests his involvement in the deal. The acquisition utilizes less than 3% of Berkshire's cash reserves, which have been accumulating due to the lack of attractive major acquisitions in recent years.
Why It's Important?
The acquisition of OxyChem by Berkshire Hathaway is significant as it marks a potential transition in leadership from Warren Buffett to Greg Abel. This deal reflects Berkshire's strategy of acquiring robust operating assets, which will complement its existing portfolio, including Lubrizol. The transaction also highlights the challenges faced by Berkshire in finding attractive acquisition opportunities amidst rising prices driven by hedge fund competition. For Occidental, the deal provides substantial cash to reduce debt, aligning with its financial strategy following recent asset sales.
What's Next?
The OxyChem acquisition is expected to close in the fourth quarter of this year. As Greg Abel prepares to take over as CEO, investors will be keen to observe any changes in Berkshire's acquisition strategy and management style. Occidental plans to use the proceeds to lower its debt, aiming to achieve a principal debt target below $15 billion. The transaction will also impact Berkshire's stake in Occidental, which includes significant stock holdings and preferred shares.
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