Since the turn of the year, Berkshire Hathaway has regularly bought shares in the oil giant Occidental Petroleum. It is now speculated that he may end up devouring the entire company. According to CNBC’s overview, the oil company is already one of the 8 largest investments in Berkshire’s listed shares.
Berkshire now owns 16.4 percent of the company, equivalent to just over $ 9 billion. In addition, Berkshire has 84 million call options on Occidental shares. The options can be exercised at a price of around $ 59.
If you put it all together and the options are exercised, Berkshire owns about a third of the oil company, according to Kiplinger.
“There is a good chance that Buffett will buy the whole thing,” according to Neal Dingmann of Truist Securities. He believes that his recent acquisition of Occidental shares is part of a bigger picture.
ACQUISITION REPUTATION: Occidental Petroleum can be acquired by Berkshire Hathaway. Photo: Dreamstime
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The analyst believes that there is a good chance that Buffett will complete the acquisition after the company has been paid down more of its debt, and has investment grade. After that, the company will be able to focus more on returning the cash flow to the owners, according to Dingmann.
According to the analyst, a purchase of the last two thirds of the company should be worth around 60 billion dollars in company value. A significant portion of the Berkshires’ around $ 100 billion in cash will therefore be put to work should a possible transaction take place.
But since Buffett has also set aside at least $ 30 billion at any given time for any major losses in the insurance segment, a complete acquisition may also prove to be too large.
Believe in higher oil prices
The oracle from Omaha has previously stated that “A purchase of oil shares is a bet on higher oil prices (over time)”. He has also bought a giant position in the oil company Chevron, a position that is now worth more than 20 billion dollars. Recent years may therefore indicate that Buffett expects oil prices to remain persistently high.
Another reason for Berkshire’s acquisition may be the company’s affordable pricing. Because even though Occidental’s share price has doubled since the beginning of the year, it is still priced at relatively low multiples. The company is priced at around 5 times next year’s expected earnings, and analysts expect a growth in earnings per share of 7 percent annually over the next three to five years.
Whether there will be an acquisition or not, Berkshire and Buffett have at least loaded up with shares.
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