Anadarko Petroleum accepted a buyout bid from Chevron earlier this month, but it's now considering Occidental's offer worth about $57 billion in cash and stock, including debt and book value of non-controlling interest. Chevron's offer would be worth about $50 billion by the same metric.
Chevron maintained Tuesday that its signed agreement with Anadarko is superior, but with Buffett stepping in many saw the advantage swing decidedly toward the much smaller Occidental and its CEO, Vicki Hollub.
When Chevron announced the deal for Anadarko on April 12, it came as a surprise to Hollub. She had been pursuing Anadarko for two years and was in what she considered to be friendly negotiations, though she was aware there was interest in Anadarko from elsewhere.
"We are thrilled to have Berkshire Hathaway's financial support of this exciting opportunity," Hollub said Tuesday in a prepared statement. "We look forward to engaging with Anadarko's board of directors to deliver this superior transaction to our respective shareholders."
Occidental announced its counter offer last week setting up something not seen for years in the oil patch — a potential bidding war. "Even if we look back at two decades of history, this is virtually unprecedented," said Pavel Molchanov, senior vice president and equity research analyst at Raymond James & Associates.
If Anadarko does walk away from Chevron, it would have to pay a $1 billion breakup fee under its agreement. Yet the entry of Buffett's Berkshire Hathaway could lead to the exit of Chevron, which is more than five times the size of Occidental.
That was the perception of how things would play Tuesday on Wall Street. Shares of Chevron rose 3 percent with many investors believing it would choose not to escalate the fight for Anadarko by raising its $50 billion bid.
In his annual letter to shareholders this year, Buffett said he was having difficulty finding large-scale investments with which to plow a portion of his roughly $130 billion pile of cash and short term investments.
It appeared Tuesday that he found at least partial solution. Berkshire will invest $10 billion in Occidental. It would receive 100,000 preferred shares plus a warrant to purchase up to 80 million shares of common stock at an exercise price of $62.50 each. The preferred stock will accrue dividends at 8% per year. Occidental shares traded at around $58, down 2 percent, Tuesday morning.
The investment is contingent on Occidental's acquisition of Anadarko. Berkshire Hathaway Inc., based in Omaha, Nebraska, owns a range of businesses including insurance, railroads, jewelry stores as well as major investments in American Express, IBM and Wells Fargo & Co.
Berkshire already holds interests in the energy sector, including several major utilities like PacifiCorp, MidAmerican Energy and NV Energy. It owns Northern Natural Gas and AltaLink energy transmission, as well as Lubrizol and nearly 12 million shares in Phillips 66.
It's not Berkshire's track record in the energy sector, however, that would be the most valuable asset to Occidental. It's Buffett's ability to make deals happen. The Occidental financing is similar to several deals Berkshire has made since the financial crisis.
Berkshire helped Mars acquire Wrigley, and Burger King to acquire Tim Hortons. Buffett also helped Dow Chemical buy Rohm and Haas. There have been other deals where Berkshire offered financing on preferred terms to companies that weren't associated with a deal. Those include Goldman Sachs, General Electric, Harley Davidson and Bank of America.
Bussewitz reported from New York.