Berkshire Hathaway’s latest strategic acquisition of Occidental Petroleum’s chemical division, OxyChem, for $9.7 billion signifies a pivotal moment for Warren Buffett’s investment empire. This substantial cash transaction marks one of Berkshire’s most significant moves since 2022 and underscores Buffett’s continued inclination towards large-scale, complex deals as his tenure as CEO nears its conclusion. The timing of this acquisition is particularly noteworthy, occurring as the chemical industry navigates a cyclical downturn, suggesting a calculated strategy to capitalize on an opportune market moment.
The structure of the OxyChem deal reveals a nuanced approach to risk management. Occidental Petroleum is retaining approximately $1.9 billion in environmental liabilities associated with OxyChem, thereby shielding Berkshire Hathaway from potential future remediation costs. This critical concession allows Berkshire to acquire the operational assets without inheriting the associated long-term financial burdens that could impact future cash flows, especially if actual cleanup expenses exceed current assessments.
Furthermore, Occidental’s decision to divest OxyChem means the company is foregoing the anticipated revenue stream from OxyChem’s Battleground plant expansion, slated for 2026. This project was projected to generate an additional $460 million annually for Occidental. While the net after-tax proceeds from the sale are estimated to be closer to $8 billion due to tax considerations, the deal strategically positions Berkshire to benefit from OxyChem’s established operations while Occidental manages its existing liabilities and future growth initiatives independently.
This acquisition is not an isolated event but rather an expansion of an already deep financial entanglement between Berkshire Hathaway and Occidental Petroleum. In 2019, Buffett initially provided $10 billion to facilitate Occidental’s acquisition of Anadarko Petroleum, receiving preferred shares and warrants in return. By early 2022, Berkshire Hathaway had further solidified its position by becoming Occidental’s largest shareholder through direct common stock purchases. This long-standing relationship ensures a continuous income stream for Berkshire through dividends on both preferred and common stock, even prior to the finalized OxyChem transaction. Occidental’s stated intention to redeem Berkshire’s preferred stock in 2029, as it accumulates cash reserves, is poised to further transform this dynamic, shifting Berkshire’s stake towards a more substantial common stock holding within the energy firm.
Michael Carter holds a BA in Economics from the University of Chicago and is a CFA charterholder. With over a decade of experience at top financial publications, he specializes in equity markets, mergers & acquisitions, and macroeconomic trends, delivering clear, data-driven insights that help readers navigate complex market movements.