Berkshire’s Potential Deal for Occidental Chemical Business Would Be a Win for Buffett

Occidental Petroleum is working to pay down debt. (Brandon Bell/Getty Images)

Key Points

• Berkshire Hathaway is in discussions to acquire Occidental Petroleum’s petrochemical business for $10 billion, according to the Wall Street Journal.
• Occidental Petroleum aims to reduce its net debt from $22 billion to $15 billion. The potential sale would help it achieve this goal.
• The chemical business is projected to have $850 million in pretax profits this year, a decrease from $1.1 billion in 2024 and $1.5 billion in 2023.

Berkshire Hathaway CEO Warren Buffett may be about to score at Occidental Petroleum CEO Vicki Hollub’s expense for a second time.

Buffett’s Berkshire Hathaway is in talks to buy Occidental’s petrochemical business for $10 billion, according to a report Tuesday in The Wall Street Journal. If the deal goes through, Berkshire would be buying an attractive business at what looks like a reasonable price, benefiting because its earnings are currently depressed.

Buffett is price-sensitive in acquisitions and doesn’t like to pay up for companies he is buying. If the deal happens, it would be the largest for Berkshire since its nearly $13 billion purchase of the insurer Alleghany in 2022.

Neither company immediately responded to a request for comment.

Occidental’s chemical business, like those of other chemical producers like Dow and LyondellBasell Industries , has been hurt this year by weak margins. Dow and Lyondell stocks are down sharply this year, and Dow has slashed its dividend in half.

Occidental has projected that OxyChem would have about $850 million of pretax profits this year, down from $1.1 billion in 2024 and $1.5 billion in 2023.

Buffett may be capitalizing on Occidental CEO Vicki Hollub’s desire to reduce Occidental’s sizable debt load—a legacy of the company’s largely debt-financed deals for Anadarko Petroleum in 2019 and the private Crown Rock in 2024. Occidental ended the second quarter with about $22 billion in net debt.

The company has paid off $7.5 billion of debt over more than a year from internally generated funds and asset sales. It is aiming to get down to $15 billion of net debt, and selling the chemical business could put it past the finish line.

In 2019, when Hollub needed quick financing to counter the larger Chevron in a bidding war for Anadarko, Berkshire bought $10 billion of attractively priced Occidental preferred stock that paid an 8% dividend yield. Berkshire also got equity warrants as part of that deal.

While Occidental succeeded in buying Anadarko, that preferred stock has weighed on Occidental’s results since then, with annual dividend payments now running over $600 million. The amount of preferred outstanding is down to close to $8.5 billion.

In a recent client note, Roth chemicals analyst Leo Mariani raised concerns about a sale of the chemicals business after the Financial Times reported that Occidental was in talks to sell the operation.

He noted that the price of $10 billion worked out to about eight times estimated 2025 earnings before interest, taxes, depreciation and amortization.

“However, 2025 represents trough earnings for its chemicals business and it should grow in the coming years, so this potential sale price doesn’t look great from our perspective,” Mariani wrote. “The OxyChem business also represented a unique diversification asset that most other E&Ps don’t have, so we are not sure that this is an ideal path for the company.”

A deal for OxyChem probably would sit well with Berkshire holders. While many Berkshire investors have been eager for the company to invest a chunk of its more than $330 billion in cash, Buffett has found little to buy, either businesses or stocks, in recent years.

Berkshire’s Class B stock was down 0.2% in the Wednesday premarket after rising 0.7% in regular trading Tuesday. Occidental shares were up 0.5% in premarket trading after falling 1.8% in regular trading Tuesday. Energy stocks were weaker because of lower oil prices.

Berkshire holds several investments in Occidental, notably a 27% equity stake in the company accumulated since 2022. That interest is worth about $12 billion. Berkshire also holds $8.5 billion of preferred stock and warrants to buy 84 million shares of common stock at just under $60 a share.

Occidental has long emphasized the benefits of its diversified, integrated business mix—oil and gas, chemicals, energy  pipelines as well as carbon capture and other green-energy businesses—as a differentiator versus peers.

Some have called Occidental a “mini major” as a result. The biggest energy companies, such as Exxon Mobil and Chevron, also have diversified business mixes including chemicals and refining.

Hollub said earlier this year that the $15 billion debt-reduction target would likely be hit in early 2027. Occidental hasn’t been repurchasing stock as it prioritizes debt reduction. That is a contrast with some of its peers.

Weakness in oil prices, which has depressed Occidental’s financial results, likely isn’t helping the debt reduction process. That might have prompted Occidental to consider a sale of the chemicals businesses.

The company’s second-quarter adjusted earnings of 39 cents a share were down from $1.03 a share in the year earlier period.

If a sale does occur to Berkshire, it will be interesting to see if Occidental auctioned the business or simply cut a deal with Buffett.

Berkshire doesn’t participate in corporate auctions and generally makes take-it or leave-it offers for businesses, as it did with Alleghany. That deal has been a win for Berkshire in part because it included the valuable Alleghany toy business, which makes the popular Squishmallow dolls.

Buffett’s insistence in not participating in corporate auctions is a hindrance to doing deals because corporate boards often feel an obligation to holders to hold an auction to get the best price for their companies or units.

Write to Andrew Bary at andrew.bary@barrons.com