No. of Recommendations: 24
I agree with Jim's analysis and DTB's further comments. In other words, it was a fairly even deal on current value. Or, maybe the best Vickie was going to get under pressure.
But it was well executed. I posted earlier that I wasn't a fan of the deal - PROVIDING that someone else would pay the $10 billon that OXY was asking. That way BRK would benefit from the reduced debt of OXY - and still keep it's $10 billion of cash. But no one was willing to compete for the business - interesting - so it was up to BRK to do the deal.
Having decided to do so, they did a really good job on execution. They didn't pay the circa $10 billion share with either prefered shares or common stock. That would have saved OXY around $1.7 billion in taxes that otherwise could have gone to further reductions in debt - or more capital for buybacks. Instead, BRK - Buffett/Able or Able/Buffett - held on to both their high dividend preferred shares and/or potentially undervalued OXY stock. They didn't cut Vickie any sweetheart deals, another one of my concerns. They knew they had the advantage, and took it. Vickie had to do something, with current near-term prospects for O&G more to the downside than upside. Good for Buffett/Able or Able/Buffett.
My objection to buying Oxychem was that it was just another commodity business tied to the economic business cycle. I was hoping for a better use of the cash. Still, I do think that they gained some value now that the deal is done. Oxychem provides basic commodity chemicals that go into PVC manufacture (think real estate/housing,) water treating for communities, and paper manufacture. A basic commodity which will be in use for decades - and where they hold a high market share. It's unlikely they'll lose any money - more probably they'll earn better money than cash. Right now capex exceeds cash flow, but that's expected to turn soon. Overall a positive deal for BRK.
One important added point. They made sure that OXY retained any liabilities for past environmental problems - possibly dating back to the Love Canal disaster. Chlorine and chlorine derivatives can be nasty stuff if it enters the environment without proper controls. So BRK did it's due diligence this time.
Summary - I've become positive on the deal. Not great - a market breakdown buy - but still pretty good.
