Occidental Petroleum Corp. (OXY, Financial) CEO Vicki Hollub declared on Friday that her company was the deserved victor in the hotly contested $38 billion acquisition of Anadarko Petroleum Corp. (APC, Financial). In what is billed as the energy sector’s most high-profile acquisition contest since the 1980s, Anadarko appears to have ended the pursuit by announcing on May 6 that Occidental Petroleum’s revised takeover bid was “superior” to the bid from Chevron (CVX, Financial).
So how did Occidental Petroleum manage to acquire Anadarko, a company five times its size? In an energy comparison, this really was David buying out Goliath. Well, with a little help from friends. Hollub’s audacious move was supported by strong allies, one being Total SA (TOT, Financial), the French oil giant, and the other being the Oracle of Omaha himself, Warren Buffett (Trades, Portfolio).
Berkshire Hathaway’s (BRK.A, Financial)(BRK.B, Financial) promise of a $10 billion capital injection gave Occidental the ability to beef up the offer with more cash and fewer shares. This meant the company no longer needed its shareholders to approve the mega-deal. Anadarko’s African assets would be sold to Total for $8.8 billion and the $10 billion invested by Buffett would see the Berkshire Hathaway CEO receive 100,000 preferred Occidental shares paying a very healthy and very generous 8% annual dividend. He will also receive the right to purchase 80 million shares of ordinary stock for $62.50 each.
In addition to being a bet on long-term oil prices, Buffett said the $10 billion investment in Occidental is “also a bet on the fact that the Permian Basin is what it is cracked up to be, but oil prices will determine whether almost any oil stock is a good investment over time.”
“If [oil] goes way up, you make a lot of money,” he added.
When asked by CNBC last week why he just didn’t go ahead and buy Anadarko for himself, Buffett said, “That might have happened if Anadarko came to us, but we wouldn’t jump into some other deal that we heard about from somebody else coming to us seeking financing.”
After Anadarko accepted Occidental's offer on Thursday night, Chevron publicly declined to raise its offer higher than the $48 billion the two companies had previously agreed upon in April.
Since May 8, Anadarko Petroleum's stock has fallen from a $76.09 high to a low of $72.98, before rallying on Friday to close at $73.06, a daily decline of 0.45%.
Disclosure: The author has no stakes in the listed equities.
Read more here:
- 2 Stocks to Avoid in the US-China Trade War
- Luckin Coffee's IPO Faces Significant Hurdles Toward Success
- Palomar: Understanding Its High-Risk Profile
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
