The transaction shows how sprawling Berkshire has become. The acquisition adds another sizeable chemicals business to the company’s collection of insurance, candy, paint, mobile homes, railroads, underwear, utilities and more. OxyChem should throw off $800 million of pre-tax income this year. Taxed at the statutory rate, that’s a 6.5% return on the purchase price. Eventual returns might be higher, as the business is cyclical and earned three times as much in 2022.
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Occidental boss Vicki Hollub, meanwhile, plans to use part of the proceeds to pay down some debt still hanging around from her acquisitions of Anadarko Petroleum and CrownRock. That will allow the company to rev up its stock repurchasing plan, to the benefit of shareholders. And the largest stakeholder is Berkshire, which has over a quarter of the common shares in the $18 billion oil company, as well as significant amounts of warrants and preferred stock.
While this transaction may be Buffett’s swan song, investors will wonder what else Berkshire has planned. The company’s cash pile was almost $350 billion at the end of last quarter, more than double the amount of five years ago.
Even Buffett has admitted the challenge: Finding deals to move the needle of a $1 trillion conglomerate is tough. Sizeable opportunities are few and well picked over. Indeed, Berkshire’s stock price barely moved this week despite reports suggesting the purchase. It will be hard for Abel to find attractive outlets for this much cash, yet shareholders will also wonder why the company is sitting on so much. Buffett’s final gift to his successor may be Abel’s most difficult burden.
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Editing by Jennifer Saba; Production by Maya Nandhini
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Robert Cyran, U.S. tech columnist, joined Breakingviews in London in 2003 and moved four years later to New York, where he continues to cover global technology, pharmaceuticals and special situations. Robert began his career at Forbes magazine, where he assisted in the startup of the international version of the magazine. Before working at Breakingviews he worked as a market researcher and reporter covering the pharmaceutical industry. Robert has a Masters degree in economics from Birmingham University and an undergraduate degree from George Washington University.