Famed activist investor Carl Icahn has come up short in his battle with Warren Buffett over Occidental Petroleum’s acquisition of Anadarko Petroleum.
The deal closed on August 8, which puts in place Berkshire Hathaway’s funding deal of the takeover.
At the end of April, Buffett announced that Berkshire would invest $10 billion in Occidental in exchange for preferred stock and warrants to purchase common stock. The investment enabled Occidental to top Chevron’s bid for Anadarko.
The deal infuriated Icahn, who castigated Occidental’s CEO and President Vicki Hollub, and railed that “The whole thing is a travesty.”
In exchange for $10 billion, Berkshire Hathaway received 100,000 shares of cumulative perpetual preferred stock with a liquidation value of $100,000 per share and 8% annual dividend. Berkshire can redeem the shares for cash at the option of Occidental in at least 10 years for 105% of the liquidation price, in addition to all dividends.
Berkshire also received warrants to purchase up to 80 million shares of common stock with an exercise price of $62.50 per share, with an expiration date of up to one year after Berkshire redeems its preferred stock.
In a letter to Occidental shareholders written after the announcement, Icahn expressed his displeasure, stating that “Buffett figuratively took her to the cleaners,” and that it was “like taking candy from a baby.”
That may be, but Berkshire will now be receiving 8% for as long as it holds its preferred stock, which looks mighty good in these days of falling interest rates. Berkshire will be receiving $800 million a year, and may make millions more if oil prices rise and make its warrants valuable.
© 2019 David Mazor
Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.