No. of Recommendations: 4
Yes, I rethought it and realized I wasn't getting the right model (and goofed the math a bit).
First the trade of cash for a subsidiary. That could be unbalanced but the simplest assumption is that it was an equal value trade. Ignore the effect on cash flow at OXY because the received cash, let's assume, included the present value of future profits from the subsidiary.
If it is equal value, why do the trade? The explanation from OXY CEO Hollub is that it provides cash to pay down debt. Paying down debt changes cash flow by increasing excess profits. "Occidental expects to use $6.5 billion of the transaction proceeds to reduce debt and achieve the target of principal debt below $15 billion set following the December 2023 announcement of its CrownRock acquisition."
from OXY press release
https://www.oxy.com/news/news-releases/berkshire-h..."That will reduce our interest payments by $350M."
"That will enable us to restart our share repurchase program."
"Start return of capital..."
from Becky Quick interview with Vicki Holllub
https://www.youtube.com/watch?v=uVkq9LprCegIf the stock price is below fair value it is a good time to repurchase shares and increase BRK's ownership percentage. Will BRK sell some shares?
Hollub also emphasizes the character of the oil and gas holdings as being in the U.S. and being a long term asset.
This could be a "stay rich" kind of investment.
Shaun
