On Friday, regulatory approval was given for Warren Buffett’s Berkshire Hathaway to acquire up to 50% of the enormous oil company Occidental Petroleum.
In response to the news, Occidental’s shares increased 10% to settle at $71.29 per share, bringing their gains through 2022 to more than 145%.
Through order to purchase more of the oil company’s common stock in secondary market transactions, Berkshire submitted an application to the Federal Energy Regulatory Commission on July 11. The conglomerate claimed that a maximum shareholding of 50% wouldn’t harm competition or reduce regulatory authority.
Acting Director of the Division of Electric Power Regulation Carlos Clay approved the request on Friday, stating that it was “consistent with the public interest.”
This year, the company has already significantly boosted its investment in Occidental. Occidental is now held by Berkshire to the tune of 188.5 million shares, or 20.2% of the company. As a result, Berkshire might now record some of the oil company’s profits alongside its own, potentially generating billions of dollars in additional profit.
In addition, Berkshire holds warrants to purchase an additional 83.9 million common shares for $5 billion, or $59.62 per share, and owns $10 billion of Occidental preferred stock. The company acquired the warrants as part of the 2019 agreement that assisted in financing Occidental’s acquisition of Anadarko. If Berkshire executes those warrants, the stake will increase to around 27%.
Purchasing the entire business?
Following a gradual increase in his stake at little cost, Friday’s news fanned rumors that Buffett would be interested in eventually buying the entire company.
“He will likely continue to buy as much as he can get below $70 or $75. If you own 30% or 40% and would like to buy it out at $95 or $100, you saved a lot of money,” Smead Capital Management president and Berkshire stockholder Cole Smead made the statement. “This stock trades like a casino. The market is giving him all the stock he wants.”
A future acquisition is likely, according to David Kass, a professor of finance at the Robert H. Smith School of Business at the University of Maryland.
“I think it is likely that Buffett will buy the whole thing eventually. The 50% limit may have been set to receive FERC approval for a non-controlling stake,” Kass said. “He clearly plans to purchase additional shares. So far his maximum purchase price has been $60.37 per share.”
Some people assumed that Berkshire and Occidental had spoken about the probable decision to raise the shareholding to up to 50%.
“He has always said he would only do friendly deals, so that he may have agreed with the OXY board on that limit,” Bill Stone, chief information officer of The Glenview Trust Company and a stockholder in Berkshire, stated.
The “Oracle of Omaha” began purchasing the shares after reading Occidental’s annual report and developing faith in the company’s leadership and growth.
“What Vicki Hollub was saying made nothing but sense. And I decided that it was a good place to put Berkshire’s money,” During Berkshire’s annual meeting in April, Buffett mentioned the CEO of Occidental.
“Vicki was saying what the company had gone through and where it was now and what they planned to do with the money,” he added.
Occidental has outperformed all other stocks in the S&P 500 because to rising oil prices.
According to data from VandaTrack, Buffett’s expanding stake in Occidental has encouraged a legion of tiny investors to follow suit, making it a favored retail stock this year.