Berkshire Hathaway, led by Warren Buffett, has been approved by U.S. authorities to buy up to 50 percent of its stake in the oil giant Occidental Petroleum.
According to CNBC and Bloomberg News on the 19th (local time), Berkshire Hathaway submitted an application to the U.S. Federal Energy Regulatory Commission (FERC) on July 11 to buy up to 50% more common shares of Occidental Petroleum in the stock distribution market.
In response, the FERC granted the application. “Even if Berkshire holds up to 50% of Occidental stake, it is unlikely to hurt market competition or reduce regulators’ authority,” FERC said in a statement. “This approval is not in the public interest,” he added.
Berkshire continued to buy shares in Oxiden Petroleum this year, and currently holds 188.5 million shares. This amounts to 20.2 percent of the company’s shares.
Berkshire also owns $10 billion worth of preferred shares of Oxidental, and has the right to buy an additional $83.9 million of common shares for $59.62 per share (a total of $5 billion).
Occidental stake stands at nearly 27% if Berkshire exercises its warrants.
In a related development, Bloomberg said, “The acquisition of Occidental stake is the largest in Buffett’s investment history,” adding, “Some investors also believe that Buffett can eventually make a full acquisition (100% stake acquisition) of Occidental , which may cost more than $50 billion.”
Buffett predicted the investment value of Occidental in advance. Occidental market value fell from $50 billion in 2019 to less than $9 billion at the end of 2020.
Bloomberg said, “On the other hand, this created a good ‘value investment play’ for Buffett,” adding that when crude oil prices began to rebound late last year and soared due to Russia’s invasion of Ukraine in February this year, Occidental was the best place to benefit. Occidental performed the best in the S&P 500 index this year, up more than 140% from an 11% drop in the S&P 500.
At the recent annual shareholders’ meeting, Buffett said, “Occidental CEO Vicky Holub’s management principle of putting cash first makes sense,” adding, “Oxidental is a good company for us to put money in (=investment).” The acquisition of Oxidenthal is also expected to create synergy with Berkshire Hathaway’s existing energy business.
Oxidental shares surged on news of Buffett’s permission to acquire a 50 percent stake. On the 19th, U.S. Eastern Time, Occidental stock price closed at $71.29, up 9.88% from the previous day.
