Poll: Will Berkshire buy the rest of OXY?

Whether this is a good investment or not, it seems that Buffett really likes it, and now owns shares and options to purchase shares covering almost a third of Occidental’s shares. If Berkshire DOES buy the rest, say at a 20% premium, it’s likely to happen in the next few months.

So putting aside whether you think it is a good idea or not, how likely do board participants think it is that Berkshire makes a takeover offer to buy the other 2/3?

  • <10%
  • 10%-<20%
  • 20%-<40%
  • 40%-<60%
  • 60% or greater

0 voters

I doubt they will buy the whole thing. And the reason is that while Oxy is a great buy right now, at some point demand destruction for oil will make it much less valuable of a company. I think Warren will remember that owning Berkshire during the wind down was a bad experience. He won’t want to own all of Oxy during a wind down, but will want shares that he can sell when it seems like a good idea.

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I doubt they will buy the whole thing. And the reason is that while Oxy is a great buy right now, at some point demand destruction for oil will make it much less valuable of a company. I think Warren will remember that owning Berkshire during the wind down was a bad experience. He won’t want to own all of Oxy during a wind down, but will want shares that he can sell when it seems like a good idea.

I agree. I also think he does want to get above the 20% ownership level so he can consolidate it and get the added tax break on dividends.

I’ve made some extended comments about this subject in replying to the Seeking Alpha article.

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as usual… Tex with the BINGO…

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anyone familiar with the tax credits available to an oil producer investing heavily in renewables?

tex - what about tax credits available to an oil producer who invested heavily into renewables? im thinking about the MIDAMERICAN model where we have deployed huge sums of cash investing in wind power generation - which gets us good returns on capital invested.

Would that change the purchase calculation?

I/m wondering if there is something bigger at play? I hadn’t considered it… would need to research various tax credit programs… perhaps you have a better familiarity?

Could arguably (depending on tax credit analysis) be a manner to deploy a lot of cash flow at good rates of return…

Hmmm.

tex - what about tax credits available to an oil producer who invested heavily into renewables?

I suspect that is a factor in what BP and Shell, among others, are doing.

ExxonMobil isn’t. XOM states that is because it brings no competitive advantages to such an effort. It won’t invest without a competitive advantage unless it’s mandated. (Woods also says selling your refineries to someone else to reduce your carbon footprint does nothing to help the world. Exxon won’t play that game either.)

Do Shell and BP have a competitive advantage? Would OXY? What extra would they bring to the party?

I/m wondering if there is something bigger at play? I hadn’t considered it… would need to research various tax credit programs… perhaps you have a better familiarity?

I don’t have any familiarity in such. And you’re probably better at doing internet searches on such than I am. Let us know what you uncover. Contributors who bring useful info to this board are always appreciated.

I do dimly recall that tax credits in a given year are limited to earnings. BHE generates excess wind and solar tax credits, but since it is consolidated into BRK, they can be applied elsewhere. Otherwise they wouldn’t add value. I guess Shell and BP would be the same.

I also recall that Buffett said he wouldn’t be investing in solar without the credits. Don’t know if the same applies to wind but I’m sure it is a big factor. BHE is now trying to get a big wind project in Iowa approved before one tax credit window expires. The big tech companies are objecting, saying the project is not in the best interests of the consumers. They are big electricity users. Hmmm…

I’m not saying that tax credits don’t have an important role to play in combatting climate change. CCS is another area where they will play an important role in getting this technology developed and demonstrated on a large scale. And CCS will be required to meet climate change goals.

I doubt these goals can be met without carbon taxes, but there’s still a lot of political objection to such in the US. And OXY is primarily US.

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MID AND WIND…
https://www.brkenergy.com/news/midamerican-energy-announces-…

Google, Facebook, and Microsoft oppose 2GW Iowa wind project

Google, Facebook, and Microsoft have complained that a $4 billion wind project in Iowa will put their energy prices up.

“Wind Prime is an exceedingly costly, massive increase in generation that MidAmerican has not demonstrated is necessary or reasonable in light of other feasible alternatives,” Google and Facebook said in their filing. “Before customers are forced to bear the increased costs that this project will result in, Wind Prime should be carefully considered by the board through a complete record informed by a full and thorough discovery process."

https://tinyurl.com/bdf27te5

MidAmerican has asked for terms such as a guaranteed 11.25 percent rate of return, which is within the normal range for regulated utilities to request, according to a news report …

The project will help MidAmerican decarbonize. It currently gets about 58 percent of its power in Iowa from wind and 42 percent from coal, nuclear and other sources. It has asked regulators to approve the project by the end of October so it could qualify for $1.8 billion in federal renewable energy credits.


Invest $4 billion, get a guaranteed 11.25% return, plus a $1.8 billion tax credit if we really hurry.

But Mid-American says prices won’t go up. Wonder where the money will come from - not really.

MidAmerican has asked for terms such as a guaranteed 11.25 percent rate of return

When 30 year UST offers 3.3% and still utilities demanding 10+ return is unacceptable. Utilities return is protected and they enjoy enormous regulatory protection. For an industry not expected to lose money, such a high return on equity is unconscionable.

Politicians, utility board members all in the pockets of utilities and doing a disservice to American citizens. The argument without such return no one will invest is laughable.

Politicians, utility board members all in the pockets of utilities and doing a disservice to American citizens.

Not all.

But sometimes funny things came up do to regulations (i.e., what are called “tariffs” in the business). They are basically price lists of what each item or service can be charged to the customer. Now the tariff specifies what the telephone company is to charge for each thing: both the maximum and the minimum amount. The reason a minimum is specified is so that the telephone company cannot sell something at a loss to harm a competitor.

Now one particular telephone company sold one of our products, basically an automatic central office installed at a customer’s location. And these items are designed to handle the peak calling rates it could process during the busy hour of the business. Unfortunately, the telephone company designed the thing with insufficient capacity because the customer required all its salesmen to call in at 9AM every week day. So the peak all came in in 15 minutes and therefore 3/4 of then could not get through. The customer threatened to sue us. We realized it was our fault and offered to supply additional capacity at no charge. But the board of public utilities would not allow the telephone company to supply the additional equipment at no charge. It did have to go to court. I do not know how it came out.

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Unfortunately, the telephone company designed the thing with insufficient capacity because the customer required all its salesmen to call in at 9AM every week day. So the peak all came in in 15 minutes and therefore 3/4 of then could not get through. The customer threatened to sue us. We realized it was our fault and offered to supply additional capacity at no charge. But the board of public utilities would not allow the telephone company to supply the additional equipment at no charge. It did have to go to court.

Why did the customer want to go through all these troubles? Just separate salesmen into groups, each calling at a different time, perhaps getting some bonus refund from your company as well.

Interesting. I voted 20-40%, and the weighted average of the 53 responses (including mine) is exactly 25%, using the midpoints of the ranges for the purposes of calculation.

I presume the takeover price would be about $75, about 25% above yesterday’s close of around $60.

The other major possibility is that Buffett is going to stop as soon as he gets to 20%, where the tax rate on dividends is better. Another 3 days like yesterday and we’re there!

dtb