Subject: Re: OxyChem Deal: , another opinion,
Reducing debt at OXY provides direct value to BRK. BRK uses $9.7B cash and gets the chemical business worth supposedly >$10B and 32.7% of $6.5B debt pay down and the same percentage of $9.7 - $6.5B = $3.2B of cash at OXY.

So net advantage to BRK:
>$10B chemical business
$2.12B OXY debt pay down
$3.2B OXY cash infusion
———
Total benefit $15.32B


There are 2 problems with this:
(i) Since BRK only owns the chemical business once, it loses the portion of OXY's chemical business that it already owned through OXY. In other words, we need an additional line:
-$3.27B diminished value of OXY, which no longer owns that $10B chemical business.
(ii) BRK only gets the benefit of 32.7% of the $3.2B of OXY cash increase, so that line should be:
$1.05B OXY cash increase

That means that Berkshire gets:
$10B chemical business
$2.12B OXY debt pay down
$1.05B OXY cash infusion
-$3.27B in value of the chemical business it previously owned through OXY

Total benefit $9.9B - which makes more intuitive sense anyways.

DTB