Occidental saw its share price drop by 7% on Thursday, becoming one of the companies with the largest decline in the S&P 500 index. Previously, the company agreed to its OxyChem chemicals arm to Berkshire Hathaway for $9.7 billion. This move was part of the company's attempt to reduce debt after years of costly acquisitions.
Occidental's "problem has been getting our debt down faster," CEO Vicki Hollub told CNBC, following acquisitions of Anadarko Petroleum and CrownRock in 2019 and 2024, respectively, and the company plans to use $6.5 billion in proceeds from the Berkshire deal to pay down debt, achieving its target level of principal debt below $15 billion.
This move will "unlock our stock, and allow shareholders to feel more comfortable, hopefully, to add to their positions and others to come in," Hollub said. "So now we're going to be able to start our sharing purchase program again... This is the last step that we needed in our major transformation that we started 10 years ago."
But the deal's timing is not ideal, TD Cowen analysts said, as the transaction will help the company pay down debt, yet it comes as capital expenditures tied to OxyChem's multi-year growth initiatives are peaking, meaning the free cash flow inflection expected in coming years will be lost.
Analysts at Roth MKM said the sale could weigh on free cash flow growth in coming years, as the unit was expected to contribute significantly to expansion.
Paul Cheng, an analyst from Scotiabank, pointed out that the transaction price seemed too low as he had previously estimated the value of this department to be $12 billion.
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