Warren Buffett could save Occidental Petroleum. But would he do it?
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With
Occidental Petroleums
shares 69% this year and its market value at only $ 11 billion, a Wall Street analyst wonders if
Berkshire hathaway
CEO Warren Buffett may be interested in buying the leveraged energy company.
In a client note, Paul Sankey, analyst at Mizuho, wrote: Strategic question, would Warren Buffett buy Occidental? Sankey reaches no conclusion, but says buying Western in Berkshire (ticker OXY) would allow the company to avoid selling certain assets and giving to the company business the opportunity to restructure.
Wall Street doesn't seem to put a high chance of a West Berkshire deal. Western stocks were down $ 1.74, or 12%, around noon Wednesday at $ 12.60, near their 52-week low of $ 12.09 set on Monday. Berkshires' Class A (BRK / A) shares lost $ 11,561, or 3.8%, to $ 292,000.
Berkshire owns $ 10 billion of Western preferred shares, paying a high dividend yield of 8%, and owns a 2% interest in Western common shares, or $ 19 million 39; shares on which it displays a loss of paper. Berkshire had no immediate comments on Sankey's speculation.
Mizuho analyst wrote that Buffett, and Buffett alone, would be the white knight. Western debtor slashed quarterly dividend by 86% on Tuesday to 11 cents and is expected to cut capital spending for 2020 from $ 3.5 billion to $ 3.7 billion from $ 5.2 billion to $ 5.4 billion , in response to the sharp drop in oil prices. The company is weighing less than $ 38 billion in debt resulting from its $ 57 billion purchase of Anadarko Petroleum last year.
Some analysts see little reason for big oil companies like
Exxon Mobil
(XOM) or
Chevron
(CVX) to buy Occidental, given its heavy debt and its preferred stock obligations.
Buffett, Sankey notes, was burned in the energy sector after losing money on an investment in
ConocoPhillips
(COP) ten years ago. Berkshire tends to favor more stable companies when it comes to acquisitions.
If he bought Occidental, Berkshire would not need to pay $ 800 million in annual preferred dividends and would likely eliminate the current dividend. This would free up money for capital exploration.
However, the Western board is unlikely to be anxious to sell the business given the depressed share price, and Buffett only makes friendly deals. Berkshire can afford it, with more than $ 120 billion in cash on its balance sheet.
Buffett might be happy to sit down and collect the $ 800 million in preferred dividends rather than get involved in the messy, capital-intensive business of running a large corporation. # 39; energy. This preferred dividend seems safe after the drop in the common dividend and Occidental could pay Berkshire the stock dividend instead of the money.
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