Warren Buffett is set to retire as CEO of Berkshire Hathaway ( BRK.A 0.13%) ( BRK.B -0.02%) at the close of this year. Before he leaves, however, the company he has led for almost six decades will complete at least one more significant purchase.
The Oracle of Omaha, along with incoming CEO Greg Abel, anticipate finalizing an agreement to buy OxyChem, the petrochemicals division of Occidental Petroleum ( OXY -0.32%), in the fourth quarter. Berkshire is set to pay $9.7 billion in cash—a sum that hardly makes a dent in the company’s $340 billion cash reserves. Nevertheless, this marks Berkshire’s biggest acquisition since it bought Allegheny Corp. in 2022.
This transaction is a classic example of Warren Buffett’s investment philosophy: being prepared to act decisively when outstanding opportunities arise. Here’s what Berkshire Hathaway stands to gain from this deal, and why it’s a brilliant strategic move.
Image source: The Motley Fool.
What exactly is Berkshire acquiring?
OxyChem is a major player in the petrochemical sector, ranking among the top producers of caustic soda, potash, chlor-alkali, and PVC. With 23 facilities across the globe, Greg Abel called the purchase "a strong collection of operational assets, backed by a skilled team."
Yet, the sector is under strain. Lower prices for caustic soda and PVC resulted in underwhelming pre-tax earnings of just $213 million in the second quarter. The company’s leadership has adjusted its full-year pre-tax profit forecast to a range of $800 million to $900 million for this year.
Occidental’s executives believe that pricing pressures on the supply side will ease next year. During their first-quarter earnings call, management projected "$1 billion in additional pre-tax cash flow from non-oil and gas sources in 2026, with more growth in 2027." This improvement is partly due to upgrades at OxyChem’s plants.
For now, Berkshire is stepping in to acquire these assets while the industry is experiencing a downturn. The $9.7 billion purchase price is estimated to be about eight times OxyChem’s expected 2025 EBITDA. This valuation is similar to other chemical companies like Eastman Chemical and Dow, though the entire sector is trading at lower multiples due to the same challenges affecting OxyChem’s profits.
If the market rebounds as Occidental’s management predicts, Berkshire could be securing a tremendous deal. But the structure of the acquisition makes it even more advantageous for Berkshire and its investors.
The added bonus for Berkshire
The main reason Occidental agreed to sell OxyChem, despite forecasts of stronger earnings and cash flow ahead, is its need for liquidity. The company increased its debt load to fund the CrownRock acquisition in August 2024.
The rise in Occidental’s debt was always intended to be short-term. When the acquisition was announced, management stated it would sell assets and use surplus cash flow to bring debt below $15 billion. Although the company has been proactive in reducing debt, it still had $24 billion in liabilities at the end of the second quarter.
Berkshire’s cash payment will result in $8 billion net after taxes for Occidental. Of this, $6.5 billion will be allocated to debt repayment, while $1.5 billion will be added to Occidental’s cash reserves. Along with further debt reduction from free cash flow, management expects to reach its goal of less than $15 billion in debt.
This debt reduction also indirectly helps Berkshire. The conglomerate owns a 28% stake in Occidental. A healthier balance sheet should enable Occidental to invest more in its Permian Basin assets and improve its free cash flow by lowering its debt load, supporting the company’s long-term prospects.
Another key aspect of the deal is especially beneficial for Berkshire and its shareholders. Rather than using Berkshire’s preferred shares in Occidental to pay for OxyChem, Buffett and Abel persuaded Occidental to accept cash. This allows Berkshire to keep earning its 8% annual dividend on the $8.5 billion in preferred shares it still holds—a return far superior to what it earns on short-term Treasury securities.
Occidental has announced plans to begin redeeming those preferred shares in August 2029, which means Berkshire shareholders will enjoy at least three more years of elevated yields. This is an extra benefit for Berkshire investors, who have finally seen Buffett deploy some of the company’s growing cash reserves.
