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Warren Buffett is involved in a rare bidding war in the energy sector.
Berkshire Hathaway has invested $ 10 billion in preferred shares in Occidental Petroleum to complete Anadarko Petroleum's takeover project. Last week, Occidental made a competing bid for the oil and gas driller, challenging Chevron's purchase of Anadarko for $ 33 billion.
Western shares fell 2.7% in pre-market trading, while Chevron shares jumped 3%. A company's share price often falls when investors think it is about to acquire a business. The shares of Anadarko have fallen by about 2%.
The capital injection of Berkshire could make Occidental a more formidable suitor. By pursuing Anadarko, Occidental is partnering with a large oil company with a much larger balance sheet and a market capitalization nearly five times higher than its value.
Several analysts initially downgraded Occidental's shares as a result of its rival bid, with some arguing that the buyout would be more risky than Chevron's proposed takeover of Anadarko. The obtaining of the benefits of the transaction depends in part on the successful divestment of Occidental, consisting of assets worth 10 to 15 billion dollars.
Berkshire's stake suggests that the company believes that the West is best positioned to pull the value of Anadarko's portfolio. Occidental focuses on the Anadarko area in the Permian Basin, the American region of oil shale that spans western Texas and southeastern New Mexico.
Vicki Hollub, CEO of Occidental, presented Occidental as a high-performance Permian driller capable of enriching Anadarko's shareholders by extracting more oil and gas from boreholes at a lower cost.
"We are delighted to have the financial support of Berkshire Hathaway for this exciting opportunity," Hollub said in a press release.
Here is how the contract with Berkshire is structured:
- Berkshire will receive 100,000 cumulative perpetual preferred shares valued at $ 100,000 per share.
- The conglomerate also obtains a purchase mandate to acquire up to 80 million shares of Occidental at an exercise price of $ 62.50 per share.
- The preferred share will generate dividends of 8% per annum.
Western shares closed Monday at $ 60.13. Anadarko closed at $ 73.32, just below the $ 76 cash and stock bid made by Occidental for the company.
This is a story in development. Come back for updates.
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