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Berkshire's investment in Occidental is a "classic Buffett" but also seldom support for a hostile candidate



Warren Buffett, Chairman and Chief Executive Officer of Berkshire Hathaway

David A. Grogan | Berkshire Hathaway's money-settling deal with Occidental Petroleum is a classic Warren Buffett, but it's also unusual that Berkshire is helping what can be considered a hostile takeover bid, something that in most cases is deviated. 19659002] Berkshire and its founder, Buffett have departed from using Berkshire's huge cash resources to make hostile deals. Two years ago, Kraft Heinz, backed by Buffett and private equity firm 3G, withdrew from Unilever's unwelcome bid for Buffett's disgust at hostile deals.

In this case, Berkshire will invest $ 1

0 billion in Occidental in exchange for 100,000 shares of the cumulative, indefinite, preferential shares that depend on the successful acquisition of Anadarko by Occidental. The deal also includes warrants for the purchase of 80 million shares of ordinary shares of Occidental.

"The hostile component, the bidding component is a bit strange, Berkshire said they did not take part in auctions in the past," says KBW analyst Mayer Shields. Shields said Berkshire had joined Validus Holdings, trying to break the Allied World Assurance bid for Transatlantic in 2011 but did not win.

"Berkshire Hathaway has a lot of money, and they have shown that they do not find that ratings are terribly enticing, there was an unwillingness to buy things that are there … That's 10% or less of his current money, so why not? "

No" appetite for outrageous deals "

By buying a possible combined Occidental and Anadarko, Berkshire makes a big bet on American shale. Both companies have holdings in the Permian basin. Occidental has offered $ 38 billion in shares and cash for Anadarco, surpassing an earlier offer from Chevron. Anadarko entered into negotiations with Occidental but his board so far still supports the Chevron agreement

Buffett said shareholders only last year that Berkshire has no appetite for hostile deals. "Well, we will not make hostile offers, I do not believe there is anything fundamentally wrong in the idea, I mean, if you take the Fortune 500 companies, I'm sure that all 500 are not managed by the best, or in some even Buffett's most friendly investor management, Buffett said.

Buffett also said he did not think it was "evil or something else to conduct a hostile offer for a company. , and we do not want to get into it, "he said. Buffett said he likes to like the executives of the companies he invests in because managers will continue to run their companies. Berkshire has held a number of rare positions against guides, including one when he held his vote for a Coca-Cola compensation plan that Buffett considered excessive.

Shields said the investment in Occidental could be seen as less hostile now when it was in conversation with Anadarco, but it is still a competitive situation. In essence, Berkshire will act as a type of banker for the combined company, not a bidder. However, its financial support strengthened Occidental's share and cash offer. now I have dominion. Occidental, before the promise of Berkshire Cash, was seen as a weaker buyer, as its shares were less attractive to Chevron and its deal was dependent on asset sales. The company will also be more profitable as a result.

So far Chevron sticks to his deal. "We believe our signed agreement with Anadarko provides the best value and the highest security for Anadarko's shareholders," the company said.

Shields said that Berkshire, who has his own big energy portfolio, may even consider a role in the sale of Anadarko's property, which could include Anadarko's deep-sea and liquidation farms. The Berkshire funds include MidAmerica Energy, which has a variety of energy assets such as pipelines, electricity transmission and investments in wind power.

Financing for Occidental is just a warm up of some very big acquisitions from Berkshire. Buffett recently told CNBC that a large portion had recently escaped, and he was very close to a very large acquisition in the fourth quarter, but the deal broke down. "Berkshire has $ 90 + Billion available for acquisitions to complement organic growth that we expect to grow immediately for EPS." Mr. Buffett recently said the company is planning a major acquisition that is not being realized. but this means Berkshire remains open for big deals, "Barclays analyst Jay Gelb recently wrote.

Shields also said the big deal could be in any industry, and Buffett did not necessarily have to report a big deal Energy Buys. "This can be almost everything. That could be energy, but when we talk about over 100 billion in cash and they put $ 15 billion in this deal. This leaves a lot of dry powder for other things, "he said.] 19659002] Berkshire's interest in Occidental is not unusual for Buffett." Back to the financial crisis, he put money into companies like Goldman Sachs and GE, though for quite different reasons. "There were not dozens or dozens of such deals," said Shields. "Berkshire is able to borrow money on very attractive terms … from this point of view it's not that unusual. Obviously you have to be the size of Berkshire to have these opportunities. "

The fact that western investments include Preferred Shares makes it particularly attractive as it provides Berkshire with a coupon without exposing ordinary stock volatility. The preferred shares will accumulate dividends at 8% per annum and may be redeemed for up to 10 years at a redemption price equal to 105% of the preference for liquidation and all accrued and unpaid dividends.Dividends may be paid in cash or Western pound our shares.

Berkshire will also receive warrants to purchase 80 million shares of common stock of Occidental price of 62.50 dollars per share. Occidental traded Tuesday at $ 59, with about 1.8%. [19659018]
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