Does Buffett have a 'surprise or two' left in him? Followers celebrate his latest $9.7B acquisition before he retires

Berkshire Hathaway, with Warren Buffett still at the helm, announced on Oct. 2 its acquisition of OxyChem, Occidental Petroleum’s chemical business, for $9.7 billion in cash.

Throughout his lifetime, Buffett has stood by the tenets of value investing — seeking out companies with stock prices that are lower than the intrinsic value of the business.

Must Read

According to Lawrence Cunningham, a corporate director who has written multiple books on Berkshire Hathaway, this deal fits well into the company’s playbook. He told Business Insider (BI) it displays three of the hallmarks of a Buffett deal: “simplicity, durability and mutual benefit.” (1) Occidental has accumulated debt in recent years. Berkshire owns a one-quarter stake in Occidental, so the deal secures the conglomerate a new business while helping Occidental pay off debts and strengthen operations.

A “win-win,” analyst Brett Gardner told BI.

Some of Buffett’s followers are wondering if this is the Oracle of Omaha’s last deal before he steps down as CEO of Berkshire at the end of the year — the cherry on top of a long, fruitful career. But others, like Gardner, wonder if Buffett still has time for a “surprise or two” before he steps down.

Is this Buffett’s last deal?

Buffett may be preparing to hand over control of Berkshire’s day-to-day operations to his successor, Greg Abel, but the 95-year-old won’t be left completely out of the loop. He’s staying on as chairman of the board.

So, while it’s unknown what lies ahead as the year winds down, it appears that Buffett still has his wits about him. Even after Abel’s transition to the CEO position, the pair may continue to collaborate.

Read more: How much cash do you plan to keep on hand after you retire? Here are 3 of the biggest reasons you’ll need a substantial stash of savings in retirement

“Greg isn’t going to let the best capital allocator of all time sit on the sidelines if opportunities pop up,” Gardner said. Even if Abel has final say on business decisions, that “doesn’t mean [Buffett] can’t be useful.”

Eagle-eyed observers might note, however, that Abel, not Buffett, is the Berkshire executive quoted in the press release announcing the company’s acquisition of OxyChem, underlining the possibility this could be Berkshire’s last big deal under Buffett. (2)

Is value investing for you?

Berkshire investors are hoping to benefit from this deal, while other investors can ponder tenets of value investing by considering the details of this transaction. Essentially, Buffett purchased OxyChem at a relatively low point in Occidental’s financial life, investing in a hopefully brighter future.

Occidental presumably wanted to pay off debts and stabilize its balance sheet, and Berkshire is sitting on hundreds of billions in cash after an enormous stock selloff in recent times. The infusion of capital on offer might have been seen as a golden opportunity. This put Buffett on the strong side of talks, which may have helped him negotiate favorable terms. It’s likely that he sees extensive value in OxyChem, far beyond the $9.7 billion purchase price, and plans to develop that value over the coming years.

As an individual investor, you likely don’t have billions lying around for deals of this magnitude. But you can seek out companies with stock prices that are lower than their potential value. Those with long-lasting earning potential, solid cash flow and low levels of debt. Good management also helps. The key is to do your homework — finding value takes time and effort, but the payoff can be worth it.

What to read next

Join 200,000+ readers and get Moneywise’s best stories and exclusive interviews first — clear insights curated and delivered weekly. Subscribe now.

Article sources

We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.

Business Insider (1); Occidental Petroleum (2)

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.