Occidental Petroleum's Buffett Call Has Investors Buzzing

Richard Berger
10.77K Followers

Summary

  • The bidding war for Anadarko Petroleum continues to provide big surprises.
  • Entry of Warren Buffett financing and his Call Option is a major game changer to be considered carefully by all sides.
  • It ain't over yet, but I share some thoughts and a trading idea for this special situation.

Special Situation

killer bees stung OXY Occidental Buffett Call Chevron CVX Anadarko APC Special Situation

Occidental Petroleum (NYSE:OXY) has really poked the bee hive now. The question is, who will get stung?

I will not take time here to review the rapidly evolving fight for Anadarko Petroleum (APC) between Chevron (CVX) and Occidental Petroleum (OXY). You will find plenty of discussion and analysis of the deal, its structure, and pro/con viewpoints without my rehash here. Instead, I am providing a snapshot of my own view as both an oil man and investment analyst as things sit today. My purpose is to highlight some points to consider regardless of whether you are for the deal, against the deal, or simply a confused investor caught in the middle. Ultimately, in closing, I will provide a trade idea which can satisfy any of these viewpoints.

The Buffett Call, leveraged off preferred shares and avoiding an OXY shareholder vote up/down, is a game changer. When the dust settles, OXY holders need to ask what dilution they will suffer from this financing and Buffet Call position, and share distributions to APC owners.

If they have no vote, then why care about OXY shareholders' misgivings? Simple. It is because the deal as structured will convert APC shareholders into OXY shareholders! Thus, the post-deal impact on OXY shareholders is very relevant to those that do have a vote (the APC shareholders).

I have no dog in this hunt. I own none of the companies involved. However, if I were an APC holder, I would prefer the CVX offer over the OXY offer that gives with one hand while using sleight of hand to take it away once all the dust has settled. As an OXY holder, I would also oppose it.

So, will a major activist OXY shareholder - Carl Icahn *cough cough* - use minority shareholder rights litigation to stall

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This article was written by

Richard Berger
10.77K Followers
Mr. Berger is the creator and developer of the YDP screening tool, a chart system and its analysis for screening and monitoring dividend income equity investments. The recipient of Seeking Alpha's Outstanding Performance Award, he also has been Seeking Alpha's #3 ranked Author for Income Investing Strategy & #4 for Utilities. 20 years of sitting in the board room gives me unique insights into Oil & Gas investments and corporate deal making in general. Additionally, he offers a Subscription Service  for Value & Income investors, boosting income while reducing market risk using covered option writing on a dividend income equity portfolio. Residing in Brazil gives me a local's inside view on the pulse of its economy, politics, investment climate and breaking news. A view of my front yard is available here.A former Chief Operating Officer, Director, Vice President and General Manger of Oil and Gas for Southern Pacific's Oil and Gas Operations, Business owner, geologist, and cribbage player, I've been an investor for over 48 years (started young at 13) and learned my lessons the way that makes them stick, by hard knocks and both big and little mistakes. Hopefully I can share some of those lessons with others.I am an American expatriate that decided to retire at age 57 in 2009 and now live in Brazil. As an early retiree I invest for income and manage portfolio risk by screening for strong and reliable historic data along with favorable fundamental and technical current trends.I spend 6 months/year living at home in Brazil and 6 months/year traveling the world. I have structured my financial positions so that I live virtually tax free with much of my income exempt from US tax since I live ex patriot and a lot of my US derived income over the annual ex-patriate exemptions is held in my tax free ROTH and tax deferred IRA/SIMPLE plans. This enables my tax savings to pay for my 6 months of annual traveling :) . My investing is for income and appreciation with a balance of low to moderate short term risk and low long term risk. To accomplish this I use quality dividend payors with a long track record of steady or increasing dividends along with slowly appreciating equity prices. I target a 8 to 15 % yield and almost exclusively require a minimum history of 5 years of steady/increasing dividends and no decreases in dividend ever or at least past 10 years. I diversify through sector, country and currency unit the stocks are traded in, and security type (equity, royalty trust, REIT, etf, and ADRs). I use covered call writing to enhance my portfolio yield with no added risk. In fact, it lowers the risk substantially. Once I identify a stock I want to own and an entry price for it, I write cash covered puts at or below that entry price (with a minimum of 1%/month time premium. Thus i obtain at least a 12% annualized yield before compounding just from the option premium. Likewise, I use the sale of cash covered puts to generate income and and generally get an entry point at 5 to 10% below my acceptable entry level price if/when the put stock does get presented. Thus my strategy provides a 12% pre compound yield on cash and entry into stock purchases at a 5 to 10% discount from "retail". Because I only select stocks that I am willing to hold long term for their reliable dividend yields, I am not concerned much with market volatility or short/midterm risk. Indeed, market volatility is my friend since it increases the premiums paid on the options I sell. I also selectively sell covered calls on positions I hold long so as to add to my yield that way while not taking on any additional risk.This strategy has kept me happily living off my portfolio income and traveling 1/2 the year while my portfolio has been slowly increasing in value even after my harvesting income for living expenses. As of December 2020, I am no longer writing for Seeking Alpha. If you would like to contact me with questions about my work or subscription service, please leave me a message on this site or email me at boater805@gmail.com

Analyst’s Disclosure:I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I have no positions but may consider a neutral straddle on OXY as discussed in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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