Occidental Petroleum Corporation has announced that, in connection with the financing of Occidental's proposal to acquire Anadarko Petroleum Corporation, Berkshire Hathaway has committed to invest a total of US$10 billion in Occidental.
As a result, Anadarko on Monday agreed to start talking to Occidental, saying its bid could potentially be superior to Chevron's existing deal to buy Anadarko for $33 billion in cash and stock. "We think there is significant execution risk with the Anadarko deal and it would increase Occidental's financial leverage significantly".
Chevron is one of the largest oil companies in the world and five times the size of Occidental as measured by market capitalization.
Representatives for Anadarko didn't immediately respond to a request for comment.
The Berkshire investment, contingent on Occidental completing its proposed acquisition of Anadarko, could also repay some of the debt being taken on to finance the deal's cash portion, or cover the $10 billion to $15 billion of proceeds from asset sales which Occidental plans in the two years after closing the acquisition.
The California-based oil explorer's cash-and-stock bid was valued at $31.6 billion, or $62.93 a share. Chevron's deal with Anadarko was structured as 25 percent cash and 75 percent stock.
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Anadarko Petroleum Corp. admitted Chevron's bid despite the fact that it had been in talks with Occidental for a while. The preferred stock will accrue dividends at 8% per annum (or with respect to dividends that are accrued and unpaid, 9%).
Occidental will engage with Anadarko's board of directors to "deliver this superior transaction to our respective shareholders".
Occidental's shares dropped over 4% in early trading Tuesday.
Berkshire already holds interests in the energy sector, including several major utilities like PacifiCorp, MidAmerican Energy and NV Energy. Some investors expressed their concern over the investment, with some stating that the Occidental is offering too much to get Buffett's support.
Berkshire received since-redeemed preferred stock in Kraft Heinz when that packaged food company was created in a 2015 merger.