I’m a little sad not to be in Omaha this weekend for the Berkshire meeting, but I’ll be watching some of the Q&A tomorrow to see how Warren and Charlie are looking and try to get some little nuggets of wisdom from them.
The biggest news lately from Berkshire Hathaway (BRK-B) is that they’re at it again, using two of their most valuable assets (Warren Buffett’s reputation, and their ability to make fast decisions with massive amounts of money) to backstop a corporate takeover in exchange for preferred shares and warrants.
Berkshire has agreed to invest $10 billion in Occidental Petroleum (OXY) through preferred shares, in order to buttress their surprise offer for Anadarko Petroleum (APC) and help give them some heft to discourage Chevron (CVX) from upping its initial bid. Buffett’s involvement gives a stamp of approval that investors and management teams almost always respond positively to, at least subconsciously, and $10 billion in cash helps to make sure that Occidental’s higher bid doesn’t get drowned out by the “safer” bid from Chevron.
We don’t know what Occidental shareholders will decide, or if Chevron will up its bid, but if it works out Berkshire gets a nice position in a growing company, with preferred dividends (8%) and warrants (for 80 million shares at $62.50), with both the preferreds and the warrants apparently having long terms (about 10 years, which would mean that Berkshire is guaranteed to get back 80% of its investment just from dividends). That’s not unlike the “rescue” funding or deal financing Buffett has agreed to in the past with folks like Bank of America, Goldman Sachs, Kraft Heinz, Mars and GE, most of which have worked out very well for Berkshire not because the stocks always did well during the time Berkshire held them (though mostly they did fine), but because the preferred shares and warrants were on such good terms. Berkshire and Buffett don’t always win, of course, we need only look at Kraft Heinz to confirm that (though Berkshire still isn’t badly in the red on that deal, they just passed up on a lot of gains by overpaying and then holding too long), but they tend to do well.
And it’s notable, as well, that Buffett is so eager to deploy meaningful amounts of capital that he was available at a moment’s notice for Occidental to fly into Omaha to hammer out ...