Warren Buffett Berkshire Occidental Oxychem

Warren Buffett’s Berkshire Hathaway announced Thursday it reached a deal to buy Occidental Petroleum’s petrochemical unit, OxyChem, for $9.7 billion in cash.

The deal marks Berkshire’s largest since 2022, when it paid $11.6 billion for insurer Alleghany. It also comes at a time in which the conglomerate is sitting on $344 billion in cash, near a record for the company.

Shares of Occidental rose 1.4% in premarket trading Thursday following the announcement.

Berkshire is already a major investor in Occidental, holding a 28.2% stake as of the end of June. Buffett — who is 95 and stepping down as CEO at the end of the year — has said he wouldn’t take complete control of the Houston-based oil company.

OxyChem manufactures water treatment, healthcare and other commercial chemicals. Occidental said it will use $6.5 billion of the proceeds to pay down debt.

Occidental CEO Vicki Hollub said the debt reduction resulting from the deal will enable her company to restart buying back stock.

“The problem has been getting our debt down faster, so this resolves the one outstanding issue that I think will now unlock our stock and allow shareholders to feel more comfortable, hopefully, to add to their positions and others to come in,” Hollub said on CNBC’s “Squawk Box” Thursday. “So now we’re going to be able to start our our sharing purchase program again….This is the last step that we needed in our major transformation that we started 10 years ago.”

The last time Berkshire did a deal in the chemical space was in 2011, buying Lubrizol for a similar $10 billion figure.

“We look forward to welcoming OxyChem as an operating subsidiary within Berkshire,” said Greg Abel, Vice Chairman of Non-Insurance Operations at Berkshire, in a press release.

Abel, who will replace Buffett as CEO of Berkshire in 2026, added that Hollub is showing her “commitment to Occidental’s long-term financial stability, as demonstrated by their plan to use proceeds to reinforce the company’s balance sheet.”

Both companies expect the deal to close in the fourth quarter. The Wall Street Journal first reported on the transaction earlier this week.

Buffett first got involved with Occidental in 2019 when he helped bankroll Occidental’s purchase of Anadarko Petroleum with a $10 billion commitment. He received preferred shares and warrants to buy common stock in return. 

Hollub said as Occidental grows its cash position, it will start redeeming Berkshire’s preferred stock in 2029. Occidental currently pays a 8% dividend on Berkshire’s preferreds.