Oxy pays Warren Buffet’s dividend with shares to save cash

4/15/2020

HOUSTON (Bloomberg) - Occidental Petroleum opted to pay Warren Buffett in shares on the preferred stock he owns as the indebted oil producer seeks to preserve cash amid the worst crude-price crash in a generation.

Occidental will issue about 17.3 million shares, worth about $257 million at Tuesday’s price, of its common stock, according to a regulatory filing Wednesday. The shares will be used to pay the dividend Buffett’s Berkshire Hathaway Inc. is owed for investing $10 billion in Occidental last year to help fund its $37 billion takeover of Anadarko Petroleum Corp., a deal that has since gone sour due to the collapse in oil prices.

Houston-based Occidental has been among the companies hardest hit by the plunge in oil prices amid the Covid-19 pandemic. Chief Executive Officer Vicki Hollub survived a bitter 10-month campaign by the billionaire activist investor Carl Icahn to fire the board and seize control of the company, but her most immediate challenge is to tackle the debt pile Occidental accrued to beat Chevron Corp. in the bidding war for Anadarko.

With $11 billion of debt due by 2022, Occidental is looking for any and all possible ways to save cash. The company slashed rank-and-file workers’ pay by as much as 30% while also reducing executive compensation. It’s encouraging its employees to write to their elected officials in favor of government financial aid for the oil industry.

The Occidental bet was one of Buffett’s largest deals in recent years and mimicked some of the famous financial crisis-era moves that allowed him to get preferred stock in companies including Goldman Sachs Group Inc. The transaction allowed Buffett to deploy a large sum of his cash pile and gain preferred stock that accrues 8% annual dividends. Berkshire Hathaway also received the option to buy 80 million more Occidental shares, about 10% of the company, at $62.50 a share. That’s more than four times higher than the current stock price.

Buffett has been struggling in recent years to find attractive ways to deploy his cash, which was close to a record $128 billion at the end of last year. The billionaire investor noted in his annual report that Occidental’s dividends on his preferred stock could be paid in cash or in shares of the oil producer. Berkshire didn’t immediately respond to a message seeking comment sent to Buffett’s assistant.

Occidental’s share registration doesn’t mean Berkshire and its affiliates will sell any stock, according to the filing Wednesday. Occidental is the second-worst performing member of the S&P 500 Energy Index since its interest in Anadarko became public knowledge a year ago, plunging 79% in that time. The index is down 51%.

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