The Oracle & OxyChem

A closer look at Berkshire Hathaway's $9.7 billion acquisition of OxyChem

Last week, Berkshire Hathaway struck a deal to acquire Occidental Chemical Corporation — better known as OxyChem — for $9.7 billion.

And, whether you see this as Warren Buffett’s swan song as CEO — a final flourish before handing the reins over to vice chairman Greg Abel — or as his successor’s bold opening act (after all, Abel was the sole Berkshire voice quoted in the press release), the whole OxyChem affair deserves special attention.

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Some had speculated that Berkshire Hathaway might fund the OxyChem acquisition with its $8.5 billion of Occidental Petroleum preferred shares from the Anadarko deal. But, instead, it turned out to be an all-cash transaction with Berkshire chiseling off a piece of its massive cash mountain for the agreed-upon $9.7 billion. Far preferable to part with lower-yielding cash (~4% as T-Bills) than the preferreds at 8%. Greggory Warren of Morningstar — who once sat on the analyst panel at Berkshire’s annual meeting — so likes the structure of this deal that he expects to boost his intrinsic value estimate for the conglomerate in the near future.

There seems near-unanimous agreement that Berkshire snatched OxyChem at a good price — with its numbers down due to industry-wide struggles. OxyChem’s pre-tax profit has dropped from $1.5 billion in 2023 to an expected $800-900 million this year. But, when chemical commodity prices pick back up in the future, profits should follow and this purchase price could look like a steal.

• Occidental Petroleum CEO Vicki Hollub defended the price by noting to Reuters that Berkshire actually paid a higher earnings multiple than in other recent sales of competing chemical companies, but unfortunately she did not elaborate further.

Occidental quietly offered OxyChem to one other potential suitor besides Berkshire, but that unnamed company was not interested. “We didn’t run a process,” said Hollub. “The reality of the situation is there aren’t very many companies that would be capable of doing a deal like this.” If OxyChem had gone up on the auction block, we might not be here today. Warren Buffett, after all, steadfastly refuses to take part in bidding wars.

For what it’s worth — which ain’t much — Occidental’s share price dropped more than 7% after the news broke, before leveling off slightly to end the week. Hollub defended the move as being important for both the oiler’s debt picture and its future cash production. “We end up over the next three years net cash positive,” she said, “versus where we would be had we kept the chemicals business.” That’s because $6.5 billion of the proceeds will go towards reducing debt — which, in turn, will eliminate $350+ million in annual interest expenses.

• Hollub remains bullish that cooler heads will prevail once the details sink in. “When we are able to explain that — and when the investment community gets that — I think they will realize that this is a much better scenario for us. It enables us to focus on what we do best.”

OxyChem’s sale to Berkshire not only allows Occidental to resume share repurchases, but also returns the company to its O&G roots. “With chemicals going to [Berkshire] and us having now our entire focus on oil and gas, which is what we do better than anything else,” Hollub told the Wall Street Journal. OxyChem had been a diversifier (and, at times, stabilizer) of Occidental’s revenue over the years — but the oiler is now all-in on an O&G roadmap that will reportedly last for decades.

Assuming everything proceeds as planned, Berkshire will soon own one of the world’s most prolific producers of chlor-alkali chemicals. In layman’s terms, these chemicals serve as vital feedstock for industries ranging from water purification to pharmaceuticals and beyond. As a global leader in these foundational — yet indispensable — chemicals, the company plays an essential role in enhancing our everyday lives. Among its core products are…

• Chlorine: OxyChem holds the top spot as the world’s largest merchant marketer of chlorine — with 3.2 million tons produced last year. This versatile building block plays a key role in thousands of products that make our world safer, healthier, and more convenient. In particular, it safeguards the U.S. water supply against harmful bacteria and viruses and can be used to manufacture a lot of different medicines and pharmaceuticals.

• Caustic Soda: #2 in the world with 3.3 million tons of caustic soda produced last year. Used in the making of pulp and paper, textiles, and aluminum.

• Caustic Potash: This compound, also known as potassium hydroxide, is essential for fertilizers, batteries, soaps, and one other high-impact application that I will touch on in a minute.

• And rounding out the portfolio are sodium silicates (widely used in adhesives and insulation) and calcium chloride (de-icing salt for winter weather).

OxyChem also excels in the production of vinyls like PVC resin and its precursors EDC (ethylene dichloride) and VCM (vinyl chloride monomer). Highly versatile and durable PVC plastic basically makes the world go round — with myriad applications in construction, infrastructure, healthcare, and electrical systems. It pipes water to our taps, insulates the wires powering our devices, lines the blood bags saving lives, and frames the windows keeping the rain out.

This is Berkshire’s biggest acquisition since paying $11.6 billion for Alleghany three years ago. Back then, the Munger, Tolles & Olson law firm advised Buffett and co. on that transaction. This time, though, Kirkland & Ellis advised Berkshire on OxyChem.

Occidental initially projected $1 billion in pre-tax income for OxyChem in 2025. But, with pricing for caustic soda and PVC coming in softer than anticipated, the company lowered its guidance to $800-900 million after the second quarter. Demand remains relatively resilient, but excess supply — both here and abroad — has significantly compressed margins. Even the traditional PVC demand peak in the third quarter is not expected to be enough to offset the aforementioned oversupply.

OxyChem was once billed as a secret weapon of sorts in Occidental’s Direct Air Capture efforts. Caustic potash (or potassium hydroxide) just so happens to be an indispensable chemical in facilitating the separation of atmospheric carbon dioxide for sequestration and other EOR (enhanced oil recovery) purposes. And OxyChem knows its way around caustic potash. “Our chemicals business is the largest marketer of that in the United States and the second-largest in the world,” Hollub said in 2023. “So we have a lot of skill and ability and knowledge around how to use potassium hydroxide.” With Occidental’s flagship Stratos DAC facility scheduled to go live by the end of year, I have to imagine that some agreement has been (or will be) reached for OxyChem to supply its former parent company with any needed potassium hydroxide.

• The prospect seems more than plausible given the proven chemistry between these companies that extends even beyond Berkshire’s 26.9% ownership of the oiler. “Occidental has, from time to time, contracted with Berkshire Hathaway for the provision of electricity, rail, and insurance,” reads Oxy’s annual report. “In addition, certain Berkshire Hathaway subsidiaries purchase various chemicals from OxyChem.” Now, OxyChem might be selling to Occidental.

One thing not coming over with OxyChem is the company’s legacy environmental liabilities. These will all be retained in an Occidental subsidiary — and any existing remedial projects (like historical clean-up obligations in New Jersey and Pennsylvania) will continue to be managed by Glenn Springs Holdings.

OxyChem, headquartered in Dallas, Texas, employs more than 4,000 people — with nearly half boasting over a decade of service. The company’s footprint spans 21 domestic manufacturing plants and two international ones in Canada and Chile. Of particular note, OxyChem is in the midst of modernizing its chlor-alkali Battleground plant in Texas. Slated for completion in mid-2026, the project marks a pivotal upgrade from outdated diaphragm cell technology to state-of-the-art membrane electrolysis. Don’t ask me to explain what that all means — I can’t — but it does promise better margins, lower maintenance costs, and increased production capacity.

• OxyChem’s capital expenditures grew from $685 million last year to $900 million in 2025 — with this being the peak year for construction on Battleground. That should drop by as much as $300 million as the project nears completion, with the company’s cap-ex reverting to maintenance levels by 2027.

Berkshire already owns a prominent player in the chemicals industry — Lubrizol — albeit one with a very different focus than OxyChem. The Cleveland-based Lubrizol thrives in the world of high-margin specialty additives and advanced materials, while new boy OxyChem hangs around the commodity side of the spectrum, churning out massive volumes of foundational intermediaries that others use as building blocks.

With Warren Buffett’s retirement coming sooner than any of us would ever want, some wonder whether Greg Abel intends to hold onto Berkshire’s sizable investment in Occidental Petroleum over the long run. Vicki Hollub says she isn’t worried. “I don’t feel any risk that we’re going to lose them as shareholders as we go through this transition,” she added, “because I think both [Warren and Greg] have an appreciation for our trajectory.”