BRK.A Berkshire Hathaway Inc

By Nicole Friedman 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (May 1, 2019).

Berkshire Hathaway Inc.'s investment in Occidental Petroleum Corp. is straight out of Warren Buffett's playbook.

On Tuesday, the billionaire investor's firm agreed to inject $10 billion into Occidental's bid to acquire Anadarko Petroleum Corp. Berkshire will get preferred Occidental shares if a deal goes through.

The Berkshire investment could help Occidental stave off a rival bid for Anadarko from Chevron Corp.

Mr. Buffett, Berkshire's chairman and chief executive, has long struck such preferred-share deals, offering cash to companies that need it in exchange for generous dividends and his seal of approval. During and after the financial crisis, Berkshire acted as a lender of last resort for blue-chip companies including Goldman Sachs Group Inc., General Electric Co. and Bank of America Corp.

The Berkshire-Occidental deal is Berkshire's biggest-ever purchase of preferred shares, and it has a similar structure to some of Berkshire's past deals.

If Occidental's proposed acquisition of Anadarko goes through, Berkshire will receive 100,000 preferred shares in Occidental that pay an 8% annual dividend and a warrant to purchase $5 billion in Occidental common stock.

The deal's terms are favorable to Berkshire. Occidental can't choose to redeem the preferred shares for a decade. The warrants, which give Berkshire the right to buy 80 million shares for $62.50 each, can be exercised at any point, up to a year after the preferred shares are redeemed.

Occidental stock fell 2.1% to $58.88 on Tuesday.

Berkshire declined to comment on the deal, but Mr. Buffett will likely be asked about it at Berkshire's annual meeting Saturday in Omaha, Neb. The meeting is expected to be attended by tens of thousands and watched online by many more.

The firm has struggled in recent years to find ways to invest its growing cash pile. It hasn't done a major acquisition since 2016, and the Occidental deal is its first preferred-share purchase since 2014.

Berkshire held almost $112 billion in cash at year-end, and Mr. Buffett said in an annual letter to shareholders released in February that "prices are sky-high for businesses possessing decent long-term prospects."

The firm isn't invested in any other U.S. oil producers. It holds stakes in refiner Phillips 66 Co. and Canadian oil producer Suncor Energy Inc., according to the most recent data available. Berkshire bought a stake in Exxon Mobil Corp. in 2013, but it sold that holding the following year.

Berkshire has had mixed luck with oil investments.

In 2008, Mr. Buffett bought ConocoPhillips stock when oil prices were at a high, shortly before they swooned. "The terrible timing of my purchase has cost Berkshire several billion dollars," he wrote in his 2008 letter to shareholders.

At the 2015 annual meeting, however, Mr. Buffett said Berkshire ultimately made a small profit on the ConocoPhillips investment.

"We will not be buying, very often, oil and gas stocks, but we will -- we probably haven't bought the last one," he said. "We have not distinguished ourselves, at all, in the oil and gas field, although we've made a little money, and we passed up one or two where we could have made a lot of money."

Mr. Buffett and Occidental have some shared history.

Mr. Buffett's first stock purchase was three shares of Cities Service preferred stock when he was 11 years old. Occidental's chief executive, Vicki Hollub, started her career at Cities Service, which was later acquired by Occidental. Cities Service is now called CITGO Petroleum Corp. and owned by Venezuela's Petróleos de Venezuela SA.

Write to Nicole Friedman at nicole.friedman@wsj.com

(END) Dow Jones Newswires

May 01, 2019 02:47 ET (06:47 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.