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Holly LaFon
Holly LaFon
Articles (10163)  | Author's Website |

Carl Icahn Says Buffett Took Occidental 'To the Cleaners' With Deal

While blasting merger, activist highlights nice terms Buffett got

What at first appeared as a solid victory for Occidental (NYSE:OXY) in its takeover battle with Chevron (NYSE:CVX) for Anadarko Petroleum (APX) has drawn scrutiny and ire Carl Icahn (Trades, Portfolio), who this week put Warren Buffett (Trades, Portfolio)’s involvement in his crosshairs.

Icahn, who owns 33 million Occidental Petroleum shares, on Monday called the actions of the oil company’s board during negotiations to acquire Texas shale operator Anadarko “reprehensible” in a letter, his second blasting the deal. One of the missteps he cited was approval of the financing proposed by Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) chairman Buffett, who delivered the cash that helped seal the acquisition deal. Highlighting Occidental CEO Vicki Hollub’s admission of “limited M&A experience,” Icahn said the terms of their deal, negotiated during a 90-minute meeting, heavily skewed in Buffett’s favor.

“I believe Hollub learned that negotiating a deal with Buffett, one of the country’s canniest operators, is not the optimal way to get M&A experience,” Icahn wrote. “In my opinion, Buffett figuratively took her to the cleaners.”

Hollub and Buffett agreed that Berkshire would receive $10 billion in preferred shares with an 8% dividend, along with 80 million warrants worth about $1.2 billion. But an investor Icahn spoke to would have provided financing without the bonus warrants, he said.

“The Buffett deal was like taking candy from a baby and amazingly she even thanked him publicly for it! But you can’t blame Warren, if Hollub was arrogant enough to negotiate a deal with Buffett of this magnitude despite her admittedly limited experience in M&A and the Board was misguided enough to rubber stamp it, then one might say in Warren’s defense that it was almost his fiduciary duty to Berkshire Hathaway to accept it,” Icahn wrote.

Buffett has often come to the aid of public companies when they needed cash, at lucrative terms. For instance, in 2011, he gave $5 billion to Bank of America (NYSE:BAC) when it was struggling in exchange for 700 million warrants with a low exercise price. He made around $11.5 billion when he converted the issues six years later. In 2017, he loaned Toronto’s troubled Home Capital Group (TSE:HCG) $1.8 billion with interest rates of 9-9.5%, receiving $300 million of its shares at a deep discount.

Buffett has not yet responded to Icahn’s accusations. Speaking at his annual shareholder meeting in May, he said Occidental benefited from the simplicity of dealing with Berkshire in securing financing, and he was betting on oil prices.

“Well it’s great to have an 8% preferred if there’s any oil there,” he said. “No it’s a bet on oil prices over the long term more than anything else. It’s also a bet on the fact that the Permian Basin is what it’s cracked up to be and all that sort of thing. But oil prices will determine whether almost any oil stock is a good investment over time, whether it’s Exxon or some wild cat grower.”

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Occidental responded to Icahn the same day of his letter, saying shareholder interests would be “best served by focusing on completion and integration” of the acquisition. The company also asked shareholders to oppose his four board nominees, which included two of his employees, a former Heralife (NYSE:HLF) board member.

“We do not believe that another director election approximately ten weeks after the last one is in the best interests of Occidental or our stockholders,” Hollub wrote.

Barring Icahn winning board seats, Occidental plans to close the acquisition of Anadarko in the second half of 2019 and realize $3.5 billion in annual “cost and capital spending synergies.” Securing the deal would also quadruple its debt to $40 billion.

Shares of Anadarko rose 0.22% since Monday, while Occidental Petroleum fell 0.61%. Berkshire has gained 1.26%.

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About the author:

Holly LaFon
I'm a financial journalist with a Master of Science in journalism from Medill at Northwestern University.

Visit Holly LaFon's Website


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