Warren Buffett Backs Occidental In Bidding War With US$10 Billion Investment

Anadarko Bidding War
Warren Buffett, CEO of Berkshire Hathaway Inc (Photo: Reuters)

The ongoing bidding war to takeover Anadarko Petroleum has attracted a lot of attention in Wall Street, given its implications in the larger global oil industry.

Now, the legendary investor Warren Buffett has placed his bet with a US$10 billion investment through his firm Berkshire Hathaway. Buffett is apparently betting on Occidental Petroleum to win the war for Anadarko, as his investment is aimed at providing additional financing for the firm for its takeover attempt.

The companies currently in the running to take over the Texas-based oil company include oil giant Chevron and Occidental Petroleum. Buffett's investment fully places his confidence in Occidental to win the bid.

The additional cash from Buffett's firm will allow Occidental to reduce its dependence on loans from banks, which it needed to pay for the expensive acquisition. Shareholders were previously concerned that Occidental may acquire too much debt in the acquisition, pegged to be the biggest oil and gas takeover in recent history.

In return for Berkshire's investment, Occidental would have to give the holding company 100,000 shares of preferred stocks with an 8 percent annual dividend. The dividends of the preferred stocks are significantly higher than the 5 percent being offered with Occidental's common stocks. Some investors expressed their concern over the investment, with some stating that the Occidental is offering too much to get Buffett's support.

Following the investment announcement, Occidental CEO Vicki Hollub released a statement and mentioned that the firm was thrilled to get Berkshire Hathaway's financial support for its planned acquisition. Unfortunately, Wall Street didn't feel the same way as Occidental share priced dipped by as much as 2 percent following the news.

Occidental's latest bid for Anadarko currently stands at US$76 per share of the company, beating Chevron's bid of US$65 per share by a large margin. Occidental's offer, which is split between cash and stock, would value Anadarko at around US$56 billion including its debts. Anadarko revealed earlier in the week that it has already entered into merger negotiations with the highest bidder.

Chevron, which currently holds a merger contract with Anadarko, will stand to pocket US$1 billion as a cancellation fee if Anadarko enters into a new deal with another buyer. Chevron recently stated that opting to continue with the deal will be the best option for Anadarko as it would provide the best value to the company's shareholders. Chevron is currently one of the largest oil companies in the world, with twice the liquidity of Anadarko, which means that it doesn't any help from investors to complete the acquisition. 

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