Warren Buffett Backs Occidental's Anadarko Bid With $10 Billion Pledge

(Bloomberg) -- Warren Buffett’s Berkshire Hathaway Inc. will invest $10 billion in Occidental Petroleum Corp. to help the oil producer in its $38 billion bid for Anadarko Petroleum Corp.

Berkshire will receive 100,000 shares of preferred Occidental stock that will accrue dividends of 8 percent a year, according to a statement Tuesday. Buffett’s intervention, which is contingent on the deal for Anadarko closing, comes a day after Anadarko agreed to serious negotiations with Occidental despite having accepted a lower offer earlier this month from Chevron Corp.

Occidental’s smaller size and financial resources make its offer riskier for Anadarko shareholders than the $33 billion proposal from Chevron. Occidental went public with its offer last week, creating an unusual bidding war for oil assets, after being rebuffed several times by Anadarko’s board.

“Before this announcement came out, my opinion was that Chevron would have to increase their bid to be competitive,” said Bill Nygren, chief investment officer of Harris Associates, which manages $120 billion and holds about a 3 percent stake in Anadarko. “I think at this point you would consider Chevron’s bid dead.”

Chevron rose 2.9 percent at 10:16 a.m. in New York. Anadarko fell 1 percent and Occidental dropped 3.4 percent.

Anadarko bonds fell on the news. The company’s 5.55 percent notes due 2026 widened 15 basis points to 86 above Treasuries as of 10:08 a.m. New York time. Occidental debt also weakened, with the company’s 2.7 percent notes due 2023 widening as much as 13 basis points in light trading. The company is paying an average 3.8 percent coupon on about $10.4 billion of outstanding debt, according to data compiled by Bloomberg.

Chevron believes its “signed agreement with Anadarko provides the best value and the most certainty to Anadarko’s shareholders,” spokesman Kent Robertson said. A representative for Anadarko didn’t immediately respond to a request for comment.

Buffett has been searching for ways to deploy big chunks of a cash pile that grew to $112 billion at the end of 2018. The Occidental investment would make the company one of Berkshire’s 10 biggest public-company stakes.

The investment gives Berkshire dividend-paying preferred stock and warrants to buy common shares, a structure Buffett has used before in taking stakes in Bank of America Corp. and Goldman Sachs Group Inc.

An Occidental corporate jet was in Omaha, Nebraska -- Buffett’s hometown -- over the weekend, according to flight-tracking data.

The announcement is “a bit surprising,” since Occidental had previously indicated that it had committed financing for the cash portion of the Anadarko deal, KeyBanc Capital Markets Inc. analyst Leo Mariani said in a note to clients. “This more permanent potential financing is being put in place rather quickly and is more expensive than we would have thought Oxy could have accessed.”

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