Berkshire To Make $10 Billion Investment In Occidental To Finance Anadarko Bid -- 4th Update

Date : 04/30/2019 @ 4:48PM
Source : Dow Jones News
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Berkshire To Make $10 Billion Investment In Occidental To Finance Anadarko Bid -- 4th Update

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By Nicole Friedman, Bradley Olson and Cara Lombardo 

Warren Buffett's Berkshire Hathaway Inc. agreed to inject $10 billion into Occidental Petroleum Corp.'s bid to acquire Anadarko Petroleum Corp. and fight off Chevron Corp.

Last week, Houston-based Occidental offered to purchase Anadarko for $38 billion, topping the $33 billion that Chevron agreed to pay for the company. The two sides are battling over prized energy assets in the heart of the U.S. oil boom in West Texas and New Mexico.

The backing by Berkshire gives Occidental more ammunition to fight the much-larger Chevron, and it signals that Occidental is prepared to match or exceed any Chevron counteroffer. Occidental now appears to be in a leading position to complete the acquisition, analysts said.

Anadarko representatives were unavailable Tuesday, but the company said Monday that it was considering Occidental's offer.

A Chevron spokesman said Tuesday that the company believes its agreement offers Anadarko the best value and most certainty to Anadarko shareholders. Chevron's deal entitles it to receive a $1 billion breakup fee if Anadarko walks away.

Under the Berkshire-Occidental deal, which is contingent on the Occidental completing the buy of Anadarko, Berkshire will receive 100,000 shares of preferred stock in Occidental with a coupon of 8% a year.

Berkshire also will get a warrant to buy up to 80 million shares of Occidental common stock at a price of $62.50 a share. Shares of Occidental closed Monday at $60.13 and fell 3% to $58.34 Tuesday.

The terms of the Berkshire deal are expensive for Occidental, which cannot choose to redeem the preferred shares for at least 10 years, but Occidental Chief Executive Vicki Hollub has won a key ally in the fight for Anadarko.

"We are thrilled to have Berkshire Hathaway's financial support of this exciting opportunity," Ms. Hollub said in prepared remarks.

Occidental hasn't said how it would use the cash from Berkshire Hathaway, though it could help Occidental alter its bid to avoid a shareholder vote, according to people familiar with the matter. Occidental's current offer requires signoff from its shareholders in a vote, while Chevron's doesn't.

Should Occidental use some of Berkshire's investment to increase the cash portion of its offer and bring the new share issuance beyond 19.9% of its shares outstanding, it could avoid a shareholder vote. However, if Chevron drops out, Occidental is less likely to alter its bid to avoid such a vote, the people said.

The cash also could be used to give Occidental more time to sell assets and relieve any potential debt burden, one person said.

Occidental had planned to sell billions of dollars worth of assets to counter rising debt levels stemming from a deal. Berkshire's investment could remove pressure to quickly sell assets, though could replace additional debt with preferred stock.

Berkshire has a history of buying preferred shares from companies that need cash. During and following 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 Inc.

In addition to financing, Berkshire offers the companies a seal of approval that can shore up broader shareholder confidence.

Berkshire has struggled in recent years to find ways to invest its growing cash pile. 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."

Mr. Buffett is likely to face questions about Berkshire's cash holdings at the company's annual meeting in Omaha, Neb., on Saturday. Tens of thousands of shareholders are expected to attend.

Mr. Buffett didn't immediately respond to a request for comment.

Berkshire's financing significantly raises the risk for Occidental, prompting concerns among the oil company's shareholders.

"If this escalates even further, it's hard to see how the economics really work out, especially given the leveraged position that Occidental will find itself in," said William Arnold, a former Royal Dutch Shell PLC executive and banking official.

Anadarko shares slipped 0.7% Tuesday to $72.39, while Chevron rose 3.2% to $121.53.

--Micah Maidenberg contributed to this article.

Write to Nicole Friedman at nicole.friedman@wsj.com, Bradley Olson at Bradley.Olson@wsj.com and Cara Lombardo at cara.lombardo@wsj.com

 

(END) Dow Jones Newswires

April 30, 2019 11:33 ET (15:33 GMT)

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

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