No. of Recommendations: 6
"Berkshire Hathaway’s $9.7 billion cash deal to buy Occidental Petroleum’s chemical business is looking like a smart purchase and a win for CEO Greg Abel, who played a key role in the transaction.
The OxyChem deal, which was reached in October and closed in early January, occurred because Occidental Petroleum, a leading U.S. oil and gas producer, was seeking to cut debt”
https://apple.news/Ahy_itEb0RBCz2Qk2gk3GAA
No. of Recommendations: 9
Barron’s also added:
• A report by the FT described Abel as the transaction’s mastermind. Berkshire paid a reasonable price for the business based on what could have been trough earnings in 2025 with profit upside from a capital spending plan by Occidental. Occidental retained $1.7 billion of environmental liabilities.
• The purchase price amounted to about eight times 2025 earnings before interest, taxes, depreciation, and amortization. U.S.-oriented chemicals companies are benefiting from advantaged pricing on feedstocks like natural gas amid international energy dislocations caused by the Middle East conflict.
Barron’s estimates that Berkshire probably has a 30%-plus gain in the value of OxyChem, or more than $3 billion, since the deal closed. OxyChem operates 23 manufacturing plants almost entirely in the U.S. and is a leading producer of caustic potash, chlor-alkali and polyvinyl chloride.
• Occidental used the after-tax proceeds to cut its debt to below $15 billion, reduce interest expense and allow it to reallocate capital to high-return projects in its core oil and gas business. JP Morgan analyst Arun Jayaram has written about Occidental’s rationale, citing concern about growth in Chinese chemical capacity.
What’s Next: Lukasz Thieme, a financial planner and partner at Waypoint Financial, wrote on Substack that Berkshire will benefit from a $1 billion upgrade to an OxyChem plant in Texas due to be completed this year that could add $300 million to annual Ebitda off an estimated 2025 base of $1.2 billion of Ebitda.
No. of Recommendations: 3
"A report by the FT described Abel as the transaction’s mastermind."
I'm glad that Berkshire is making money on the deal, but the chlor-alkali business is a poor business. OxyChem is a small player with outdated technology. Fifty years ago the industry converted from using asbestos diaphragms to using Nafion membranes in their production cells. Nafion membranes produce a cleaner product. OxyChem has still only partially converted. Buy businesses at a good price, but also buy good businesses.
