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Bank of Buffett drops $10bn bomb into Anadarko battle

May 01 2019 10:34
Joe Carroll, Katherine Chiglinsky and Kevin Crowley

Warren Buffett on 6 May 2017 at the annual meeting of his Berkshire Hathaway in Omaha, Nebraska. (AP)

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Warren Buffett’s intervention in Occidental Petroleum’s $37bn unsolicited bid for Anadarko Petroleum may tip the scales in the oil industry’s biggest bidding war in decades.

In a stunning escalation of the two-week-old contest for Anadarko, Buffett’s Berkshire Hathaway on Tuesday disclosed plans to inject $10bn into Occidental in exchange for preferred stock and warrants. The bombshell landed in the midst of Anadarko board deliberations about whether Occidental’s offer is superior to a lower but already agreed-to deal with Chevron.

The arrangement was announced just two days after Occidental’s corporate jet flew to Buffett’s hometown of Omaha. It’s contingent on the deal for Anadarko closing and would be his biggest investment in more than three years aside from Apple. It also answers the question about what to do with a swelling cash pile just ahead of Berkshire’s annual shareholder meeting this weekend.

Furthermore, the transaction is a major sign of approval for the future of the Permian Basin, the world’s largest oilfield, from an investor who has previously plowed dollars into oil refiners, drillers and Canada’s oil-sands.

Midas touch

The Occidental transaction follows Buffett’s classic playbook: Getting above-market rates on a preferred stake and the upside of stock options in exchange for the Berkshire seal of approval and a big check. In the past he’s lent his reputation to banks facing doubts about their capitalisation, and now he’s backing a proposed acquisition bid that’s facing questions over its legitimacy.

Buffett’s imprimatur is apparently valuable to Occidental Chief Executive Officer Vicki Hollub: The 8% that’ll be paid out on the preferred shares is more than twice the average coupon on Occidental’s debt.

Chevron stuck to its guns following Buffett’s move. “We believe our signed agreement with Anadarko provides the best value and the most certainty to Anadarko’s shareholders,” Chevron company spokesman Kent Robertson said in an email.

The California-based oil explorer’s cash-and-stock bid was valued at $31.6bn, or $62.93 a share, as of 12:16 p.m. New York time. Anadarko was trading 0.4% lower at $72.63, a premium of about 15% to Chevron’s offer price.

Omaha meeting

For Buffett, it shows he can still find unique opportunities in an environment where he’s bemoaned the high prices for most companies.

His annual shareholder meeting this weekend in Omaha is certain to feature questions about how he’d invest Berkshire’s cash, and he’s started laying the groundwork to increase share buybacks, an option he’s historically shunned.

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