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버크셔해서웨이가 옥시덴털의 화학사업부 OxyChem을 97억 달러 현금 인수, 2022년 이후 최대 투자. 인수가는 이익 대비 약 11배로 저렴하다고 평가. 옥시는 조달 자금으로 부채를 줄이고 자사주 매입을 재개할 계획. 버크셔는 현금 3,440억 달러 보유로 인수 후에도 현금이 여전히 많아 주가는 PER 15배 수준으로 시장 대비 저렴하다고 봄. 다만 이익 변동성이 커 장기 적정 PER은 약 20배로 제시.
다듬은 글
Warren Buffett has not made a big investment in many years, but recently that finally changed. It's official, Berkshire Hathaway is acquiring it's an all cash transaction. It's valued at $9.7 billion and this is Berkshire's biggest purchase since 2022. Biggest purchase since 2022. Biggest buy since 2022.
Largest investment in 3 years. Warren Buffett has been looking to make a large investment for a long time, but his sentiment has always been that the market's too pricey. We haven't done that much of it in certain periods because the prices aren't right. We have not done anything because we don't see anything that attractive to do.
So, what is the investment that changed his mind and importantly is now the time to buy Berkshire Hathaway stock? Are you encouraged you may see some fat pitches coming your way? We came pretty close to spending 10 billion not that long ago for example, but we'd spend 100 billion. I mean those decisions are not tough to make.
When something is offered that makes sense to us and that we understand and offers good value and where we don't worry about losing. The news alert, it is official Berkshire Hathaway announcing that it is acquiring Occidental's chemical business OxyChem. This is an all cash deal. That transaction is valued at $9.7 billion.
Before Michael Jordan retired, he had one last dance and now that Warren Buffett is officially retiring, many are speculating that this is the last big investment that he makes before he moves on. So, let's show you exactly what this investment is. The company that Warren Buffett has bought is OxyChem.
He bought it for $9.7 billion and the last time that he made a purchase this large was in 2022. He has of course bought stocks since 2022, but he normally only puts somewhere between 100 million to 600 million dollars into every buy. This purchase is 30 times larger. We're going to go into the details of this company that he bought, but remember the purpose of this is to find out if now may be the time to buy Berkshire Hathaway stock.
We'll talk about this at the end. First, we need to understand Buffett's latest investment. OxyChem is a chemical manufacturing business. It makes chemicals. These chemicals are the building blocks used in thousands of different products. So, no their products don't get sold directly to consumers. Their products go into making other products.
Their chemicals can be used in the likes of water treatment, construction, pharmaceuticals and those type of things. So, it's an important business because without it thousands of different products cannot be made. This is important to Buffett because in an ideal world you want a stock, a business that will be needed in society no matter what the economy is doing.
This way you can continue to make money even in a recession or depressed economic environment. We're trying to find a business with a wide and long-lasting moat around it protecting a terrific economic castle with an honest lord in charge of the castle. So, let me show you the details of this investment because this is Buffett working at his best.
If you didn't know better, you would think that this deal was made by an astute 40-year-old at the top of his game, but of course it's Buffett who turned 95 this year. As we mentioned, Berkshire paid $9.7 billion to acquire OxyChem and it's an all cash transaction. The deal is expected to close in the fourth quarter of 2025 subject to regulatory approvals and closing conditions.
So, he paid $9.7 billion, but what does Buffett get in return for this? I did some deep digging with a little help from AI and I managed to get some numbers for you. According to the annual report data, Oxy's chemical segment contributed about 18% of Oxy's total revenue in 2024. This adds to $4.92 billion in revenue for OxyChem.
Also, I found a transcript for their earnings call for 2025 and in it they actually disclose how much in terms of profits they expect OxyChem to make this year. They estimate the profit to be between 800 to 900 million dollars, which is a little lower than their previous expectations. So, let's do the math on this.
This is what investing is. Buffett paid $9.7 billion for a business that generates about 850 million dollars yearly in terms of earnings. That gives it a PE ratio of 11.4. So, Buffett paid roughly 11 times earnings for the business. That is a very cheap valuation, a very good deal for Berkshire shareholders.
I mean, just look at the market that we are in. Oxy stock itself sells for a PE ratio of 23 right now. It's price is 23 times the earnings. So, Buffett with OxyChem paid half the price of that. And then you look at the market itself that has a PE ratio of 30. So, Buffett that means he bought OxyChem at about 2/3 cheaper than the market or in other terms looking at it another way, 66% lower price than the market.
As I say, if you know Buffett, deal hunter and he will only go through with a transaction if the agreed upon price is low and it certainly is with OxyChem. Berkshire gets to diversify into a chemicals business which can throw off stable and consistent cash flows and they get to pay a low cost. The only question we should really ask is, why would Occidental agree to sell this solid business to Berkshire at such a low price?
Well, incidentally I have the answer for that. $9.7 billion in cash, what do you plan to do with it? Well, with the cash we're going to take about 6 and 1/2 billion dollars of the cash and we're going to apply it to debt reduction and that debt reduction amount will get us to below our target debt of 15 billion dollars that we laid out after the Crown Rock acquisition.
Then we'll reduce our interest payments by 350 million dollars and that will enable us then to start adding back parts of our value proposition that we were not able to do previously. So, now we're going to be able to start our share repurchase program again. The main reason we did this at this time is the timing was driven by the fact that the acquisition of Crown Rock enabled us to establish the Midland Basin as a core area.
Once we established Midland as a core area, we were able to build a good Barnett position. So, to get that Barnett position there and to also then take that Barnett knowledge and apply it to the Barnett that's underneath our conventional assets on the Central Basin platform, all of that enhanced our portfolio of oil and gas opportunities to the point where we have now decades of development opportunity in oil and gas.
So, we wanted to look at ways to accelerate value to our shareholders and again start that return of capital back to our shareholders. Now our portfolio is the best it's ever been and we're applying our advanced technology and processes to make it even better. So, really what this is doing is bringing forward value to our shareholders, but also enabling us to do what we do best, which ultimately creates even more value for our shareholders.
The problem has been getting our debt down faster. So, this resolves the one outstanding issues. So, that is as clear as day. Occidental wanted to improve their debt position. They probably got into a bit too much debt in the past, so they want to reduce that now. You know, if we look at their balance sheet on Forecaster who are the sponsors of today's video, this is my go-to stock market website, they have $24 billion in long-term debt.
They plan on putting $6.5 billion of the cash that they get from the Berkshire deal in paying off that debt. So, that would give them about $18 billion left on their books. But as the CEO said, the goal is to get that down even more to 15 billion. And then once the deal goes through and OxyChem is sold, they're going to put all of their focus into their core business, which is oil and gas and this business has been doing very well lately.
So, all of that makes logical sense, but I still believe that Buffett got the better end of the deal. A PE ratio of 11 is one heck of a price in the market that we are in, especially when we're talking a decent quality business like OxyChem. And Occidental stock price kind of shows this because since the Berkshire deal was announced, Oxy shares have tanked down 14%.
So, it shows that Buffett probably got the sweet slice of the pie here. Those decisions are not tough to make. When something is offered that makes sense to us and that we understand and offers good value and where we don't worry about losing, things get extraordinarily attractive very occasionally.
The long-term trend is up. That's the trend around and every now and then you find something. Before we ask ourselves, is now a good time to buy Berkshire Hathaway stock? Let's ask the other question that many investors are now asking, which is can we buy the same stock or a similar type stock to Warren Buffett's OxyChem?
Of course, if you followed Buffett into Coca-Cola when he bought in 1988, you'd be a wealthy man today. The same story goes with following Buffett into Apple in early 2016 or with many of Warren Buffett's other buys. So, right now can we copy Buffett with his latest large investment? Of course, we cannot buy OxyChem directly because it's not a stock and Warren Buffett has bought the company outright, didn't leave any shares for the rest of us.
How mean of him. But what we can do is look at similar companies in the same industry as OxyChem and see if they might be good deals. There are four key American companies that run a similar business to OxyChem that are available to us the general public to buy. These companies are one is Olin Corporation.
So, just like OxyChem, they produce chlorine, caustic soda and vinyls. This stock is one of the largest pure play chlor-alkali and PVC chemicals manufacturers in the US. Two, you have Westlake Chemical. Westlake are a producer of petrochemicals, PVC and caustic soda. They have a strong presence in building products and vinyls, too.
Three, you have Dow Inc., a large diversified chemical company. And four is LyondellBasell Industries, a big petrochemical and plastics producer, sells PVC resins and other commodity chemicals. One thing that you have to realize about these four stocks is they are no OxyChem and you're definitely not getting them at the price that Buffett got OxyChem at.
As you can see, the PE ratios are way more expensive. Olin has a PE ratio of 43, Westlake has a negative PE because of course they have negative earnings. Dow also has a negative PE for the same reason and Lyondell we're talking a PE ratio of 59. Also, you can use Forecaster's AI agent which I never think is a bad idea to use AI on a stock just to see if you might be missing something or if there's some new news that's come out on the stock that you've glazed over.
This is for Westlake. So, they have concerns about weak global demand and lower pricing in their operating segments. They saw a 9% year-over-year decrease in sales and they experienced a significant Q3 loss of $782 million. So, there's a bit going on and these stocks are quite volatile right now and they definitely look less stable and more expensive than OxyChem.
So, I'd be a little cautious about following Buffett into this sector unless you know it really well and now I want to address Berkshire Hathaway's cash pile and then we're going to see if Berkshire Hathaway is a buy today. So, after making the biggest investment he's made in 3 years, you would think that this is really going to help put a dent into Buffett's stored up cash pile, help solve the quote-unquote cash problem.
Well, Berkshire Hathaway at the time of recording has $344 billion in cash. When this purchase goes through, which it's expected to in the fourth quarter of 2025, that will take $10 billion of cash off the books. That means he will still have $334 billion of cash left over. That's still $77 billion more than the total amount of US public stocks that he owns right now.
AKA, this huge purchase from Buffett barely brings down the total amount of cash that Berkshire has to spend. Berkshire would have to purchase an absolute whale of a company like something as big as McDonald's or PepsiCo or Nike to actually bring that cash pile down to a more reasonable level. The only way he would realistically buy a company like this is if the stock market crashed and these companies went down to a price that Buffett is okay with.
So, the market would have to crash by a lot and right now they're essentially the opposite of cheap. The question that begins to form is with Berkshire holding so much cash, even more cash than they hold in public US stocks, are they really a good stock to buy right now or is it better to just look elsewhere?
Before we do anything, let's take a look at the numbers. Obviously, in terms of stock price they've done magnificently well. They're up from $210 5 years ago to $480 today. So, if you bought back in 2020, you would have doubled your investment. Click on sales, they've gone from $286 billion to $370 billion.
So, they've gone up a decent amount and earnings have gone from $42 billion to $67 billion and that's a 59% increase. Basically, Berkshire is doing what they've always been doing. They're growing at a slow and steady race every year compounding on the previous one. And that's just what tends to happen when you own a bunch of high-quality businesses in your name.
As we can see with Forecaster's AI agent, Berkshire are what's known as a holding company. It doesn't just own one business, it owns many different ones. This includes obviously Apple, Coca-Cola, insurance and of course now they'll own OxyChem outright when the deal goes through. But, let's ask ourselves maybe the most important question in investing, how much do we have to pay if we want to own this great business?
Is it worth it? Berkshire are selling for a PE of 15 right now. And this PE ratio is calculated on the latest trailing 12 months of earnings. So, basically what you do is you add up the last four quarters of Berkshire's earnings and you're going to get $67 billion. And then you compare that to the market cap and of course the market cap is 15 times more that number.
And of course a PE ratio of 15 in this market is really quite cheap right now. We compare it to the market's average which that's sitting at around 30. That means that averaged out most stocks in the USA are around the 30 PE ratio. Berkshire Hathaway is half the price of the market. So, why is it so cheap?
Well, let's clear this up. If you look at their past annual earnings, it's been quite volatile. Earnings have ranged anywhere between 96 billion to negative 22 billion to anywhere in between those two numbers. In fact, if you get the last 8 years of earnings and you averaged it out, you would get a $53 billion average.
So, 53 billion, you compare that to a market cap of 1.06 trillion, you're talking a more realistic PE of around 20 which for a mature high-quality business like Berkshire is probably a fair price right now. Thank you Forecaster for sponsoring this video. Don't forget if you want to invest with the use of AI, with the use of their projections tool and everything else that Forecaster offers, click the link in the description and get 10% off.
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