Buffett Gets $200 Million Payday from Occidental

Buffett Gets $200 Million Payday from Occidental

September 21, 2020

When Occidental Petroleum Corp. (NYSE: OXY) splashed out $35.7 billion to acquire Anadarko, Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK-B) put up $10 billion in cash to give Oxy the push it needed to top a competing bid from Chevron.

Buffett’s investment didn’t come cheap, of course. Buffett received 100,000 preferred shares valued at $100,000 each along with an annual coupon of 8%. In a Monday filing with the U.S. Securities and Exchange Commission, Oxy said it would pay a cash dividend of $2,000 per share so the quarterly dividend of $2,000 per share to preferred stockholders.

Oxy could have paid the $200 million in shares of common stock but that probably would have meant a secondary stock offering. And Oxy does not need any more stock dilution. When the first payment to Buffett came due this year, Oxy issued more than 17 million new shares to when the stock was priced at around $15 a share.  

Since acquiring Anadarko, Oxy’s shares have dropped from around $60 a share in April of 2019 to close at around $12 a share on Friday. That’s a decline of 80%.

To pay Buffett in stock would have required roughly 16.7 million shares. Oxy reported 930.14 million shares outstanding at the end of the second quarter and a total float of 927.61 million shares. Had Occidental chosen to pay in stock, the company would have had to issue another 15 to 20 million shares. The impact on the stock’s share price would not have been pretty.

And Buffett’s stake in the company could just have kept rising, another circumstance Oxy wanted to avoid. Last month, Berkshire Hathaway disclosed that it had sold its holdings of Oxy stock. That probably indicates that Oxy will be paying Buffett $200 million in cash for a long time.

Oxy’s stock traded down about 3.5% late Monday at $11.24 in a 52-week range of $9.00 to $47.58. The consensus 12-month price target on the stock is $15.16.

Crude oil spot prices dropped around 4% Monday, adding their own weight to Oxy’s already-heavy burden.

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