What Did Warren Buffett See in Occidental That Carl Icahn Missed?

Buffett’s Berkshire Hathaway acquired more shares of Occidental and owns a 16% stake.

Berkshire Hathaway ( (BRK.A) – Get Berkshire Hathaway Inc. Report) purchased another 9.6 million shares of Occidental Petroleum ( (OXY) – Get Occidental Petroleum Corporation Report), increasing the behemoth’s total stake to 16.3% as oil prices remain volatile.

The Berkshire conglomerate, run by billionaire Warren Buffett, said it spent $530 million acquiring the shares of the oil company, whose stock rose by 1% following the announcement, but had fallen by 13% during the past month, according to a regulatory filing.  

Berkshire now owns 152.7 million shares, worth about $8.52 billion.

These additional share purchases were made during the past week and built on the $336 million stake purchased in May and original purchase in February by Berkshire. The oil producer is now one of Berkshire’s 10 largest holdings.

Buffett, CEO of Berkshire, acquired stocks on the dip during the recent market downturn and bulked up stakes in several oil companies, including Chevron ( (CVX) – Get Chevron Corporation Report).

Billionaire investor Carl Icahn sold shares of Occidental in March after owning a 10% stake for almost three years. Not only did the activist investor sell his shares of the oil company, his two remaining board members also resigned.

Icahn is well-known for clashing with management of companies, demanding more results. He had been slashing his position in the stock.

The investor was unhappy with Occidental’s decision to acquire Anadarko Petroleum in 2019, successfully outbidding its larger competitor Chevron. Anadarko was acquired for $38 billion by Occidental.

Icahn had originally owned a 2.5% stake in Occidental, but as shares of oil producers sank in March 2020 to below $10 as the global pandemic caused massive shutdowns, he increased his stake to 10%, taking advantage of the dip.

By March 2020, Icahn had spent nearly a year criticizing Occidental’s management on its decision to bid on Anadarko to increase its footprint in shale oil fields. The billionaire also sought to have Occidental’s CEO, Vicki Hollub, forced out. 

Another thorn for Icahn was that Buffett, 91, had provided $10 billion of financing in the form of preferred stock that Occidental needed to close the deal.

Icahn, who is now 86, has set his sights on Southwest Gas Holdings ( (SWX) – Get Southwest Gas Holdings Inc. (DE) Report), a smaller natural gas utility whose market cap is $5.8 billion compared to Occidental’s $52.8 billion. Southwest Gas is planning to separate a subsidiary because Icahn had sought to sell it. 

Buffett owns both Occidental and Chevron stock in its portfolio now, which is a change for him since his investing style in the past avoided the ownership of commodities, and it could be a wager that oil prices will remain elevated for the near term. Higher inflation rates in the U.S. could have been a reason why he made the change, Thomas Hayes, chairman of Great Hill Capital in New York, previously told TheStreet.

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