Berkshire's "crown prince" makes his first big deal: Buffett-style shrewdness and Occidental Petroleum's stop-loss

Berkshire Hathaway has agreed to acquire Occidental Petroleum's chemical business OxyChem for $9.7 billion, marking the first major deal orchestrated by Greg Abel, who has been designated as Buffett's successor. This all-cash transaction reflects typical "Buffett-style" savvy—helping the debt-laden Occidental Petroleum reduce its debt while allowing Berkshire to acquire one of the world's largest independent chemical producers at a reasonable price.

On Thursday, Berkshire Hathaway agreed to acquire OxyChem, a subsidiary of Occidental Petroleum, for $9.7 billion in cash. This deal, orchestrated by Greg Abel, who has been designated as Buffett's successor as CEO, is the first major merger he has led since his succession was made clear.

For the debt-ridden Occidental Petroleum, this sale is a key step in its plan to reduce debt by up to $24 billion. The company stated on Thursday that $6.5 billion of the proceeds from the transaction will be used directly to pay down debt, aiming to reduce its liabilities to below $15 billion. The market reacted negatively to the "rescue" nature of the deal, with Occidental Petroleum's stock price closing down 7.3% after the announcement. TD Cowen analysts believe that while the deal helps reduce debt, it comes at a time when OxyChem's capital expenditures for years of expansion plans are peaking, which will result in the loss of the expected inflection point for free cash flow in the coming years.

For the buyer, Berkshire, this deal is a win-win. As the largest shareholder of Occidental Petroleum with a 29.6% stake, Berkshire is helping to repair the balance sheet of a core company in its portfolio, stabilizing its investment value. At the same time, the incorporation of OxyChem will make Berkshire one of the largest independent chemical product producers in the world, further expanding its industrial footprint.

Occidental Petroleum's Self-Rescue: Selling Core Assets to Repair Balance Sheet

The sale of OxyChem is a costly but necessary "amputation for survival" for Occidental Petroleum's CEO Vicki Hollub. The company's heavy debt primarily stems from two large acquisitions: the $55 billion acquisition of Anadarko Petroleum in 2019 with Buffett's financial support, and the $12 billion acquisition of shale oil producer CrownRock announced in 2023.

These transactions have kept Occidental Petroleum's leverage high compared to its peers, especially against the backdrop of OPEC+ increasing production, which has led to growing investor concerns about its financial condition. The company's stock price has fallen more than 17% over the past year. According to a media commentary, prior to the transaction, Occidental Petroleum's net debt in 2025 was expected to be 1.7 times its EBITDA For Occidental Petroleum, this transaction is a "timely rain" to repair its financial situation. The company's CEO Vicki Hollub stated that OxyChem has grown into "a well-operated and reliable business" under the parent company's management, generating nearly $5 billion in revenue in the 12 months ending June this year.

Analysts pointed out that this move will help Occidental Petroleum achieve its debt targets. Matt Portillo, an analyst at the energy business TPH & Co under corporate consulting firm Perella Weinberg Partners, stated that this transaction is expected to bring the company in line with its debt targets and open the door for increased shareholder returns, such as stock buybacks. Michael Alfaro, Chief Investment Officer of hedge fund Gallo Partners, bluntly stated that without Berkshire's help, Occidental Petroleum would not likely achieve its debt targets until at least 2028.

Berkshire's Calculation: A Typical "Win-Win" Deal

From Berkshire's perspective, the design of this transaction is filled with "Buffett-style" shrewdness. As the largest shareholder of Occidental Petroleum, its investment in common stock is currently underwater. Therefore, using cash to help Occidental Petroleum reduce debt essentially protects and repairs its own investment.

Greg Abel also clearly pointed this out in the announcement, stating that the proceeds from the transaction will be used to reduce debt. According to insiders, this transaction is being conducted with all cash payments, rather than using Berkshire's holdings in Occidental Petroleum for the transaction, which clearly shows that its primary goal is to help Occidental Petroleum deleverage. This contrasts with Berkshire's practice in 2014 when it used stock as payment for acquiring Procter & Gamble's Duracell battery business.

In addition to the financial synergies, this acquisition also brings strategic value to Berkshire. After the transaction is completed, Berkshire will control one of the world's largest independent producers of petrochemical products, alongside industry giants like Dow Chemical and LyondellBasell. Given Berkshire's existing ownership of the chemicals group Lubrizol, this acquisition, despite occurring during a downturn in the chemical industry's demand and oversupply, is, as Abel stated, Berkshire is acquiring "a strong operational asset portfolio supported by an excellent team."

This transaction is also Berkshire's largest since its $11.6 billion acquisition of insurance group Alleghany in 2022, demonstrating the decisiveness and style of successor Abel in capital allocation.

Future Speculation: Weakened Expectations of a Full Acquisition

For a long time, the market has speculated whether Buffett would eventually take over all of Occidental Petroleum. However, this acquisition of OxyChem has instead weakened such expectations.

According to media commentary analysis, the sale of the chemicals business has simplified Occidental Petroleum's business structure, making it a purer upstream oil and gas producer. While this frees it from historical burdens, it also reduces the complexity and attractiveness of a full acquisition by Berkshire. A more streamlined and financially healthier Occidental Petroleum may become a potential acquisition target for other large companies in the upcoming wave of consolidation in the energy sector Ultimately, this transaction created a unique "win-win" situation—Berkshire is the winner on both ends of the deal. Buffett's company not only acquired a high-quality asset at a "proactive seller" price but also ensured that the proceeds from the transaction would be used to strengthen its substantial investment in another company, making it a textbook-level answer presented by his successor Abel