- Warren Buffett's Berkshire Hathaway won approval to raise its Occidental Petroleum stake to 50%.
- Berkshire is unlikely to pursue an immediate takeover, for several reasons.
- Buffett and his team may want a better price, and they haven't said they want to acquire the company.
Warren Buffett's Berkshire Hathaway has the green light to purchase up to 50% of Occidental Petroleum, but it probably won't try to buy the energy company outright for a while.
The billionaire investor's conglomerate has built a 20% stake in the oil-and-gas explorer and producer since February, and also holds warrants it can exercise to increase its ownership to nearly 27%. On Friday, the Federal Energy Regulatory Commission (FERC) approved Berkshire's request for clearance to raise its stake to 50%.
Berkshire has happily plowed about $10 billion into Occidental stock this year, and handed the company $10 billion in exchange for preferred stock and warrants in 2019. But there are several reasons a full takeover seems unlikely in the near future.
For one, Buffett hasn't told Occidental's bosses that he intends to take a controlling stake, The Wall Street Journal reported Sunday, citing people close to the matter. The investor famously eschews hostile takeovers in favor of friendly ones, so it's unlikely he would move to acquire the fossil-fuel specialist before speaking to its bosses.
Plus, Buffett has a warm relationship with Occidental CEO Vicki Hollub, and the pair speak regularly, the WSJ said — which makes a surprise offer even more improbable.
Berkshire has filed with the Securities and Exchange Commission as a passive shareholder in Occidental. It would presumably have to refile if it enters into serious talks about buying the company.
Moreover, Occidental's stock has soared to around $70 on the news of Berkshire winning regulatory approval. Buffett, a proud bargain hunter, might balk at paying the premium to that price likely needed to win support for an acquisition from Occidental's directors and shareholders — especially as he's largely bought the stock below $60 this year.
Still, Occidental's bosses think Buffett might consider making an offer if oil prices fall and the company's stock gets cheaper, according to the WSJ. Occidental's board would likely take a fair offer to its shareholders for a vote, one source told the newspaper.
Buffett and his team may have asked for regulatory permission to increase their ownership to 50% — not because they want to take control of Occidental, but because they want the freedom to buy more shares without breaching the standard limit of 25%.
"I think he could be happy at 30% or 40% ownership over the next six months," Cole Smead, the president of Smead Capital Management and an investor in both Berkshire and Occidental, told Insider.
"I don't expect him to buy it out after this filing, because you wouldn't tip your hand and then take it over."
Buffett may be eager to continue capitalizing on the rampant speculation on Occidental shares this year. The more shares he buys now at attractive prices, the less he has to pay if he decides to buy out the rest of Occidental's shareholders.
"This filing teaches everyone that he loves taking advantage of the suckers at the table right now," Smead said.