Buffett joins bidding war for Anadarko

Occidental’s effort to buy the Texas oil producer is set to get a $10-billion boost from Berkshire Hathaway.

Warren Buffett’s intervention in Occidental Petroleum Corp.’s $37-billion unsolicited bid for Anadarko Petroleum Corp. may tip the scales in the oil industry’s biggest bidding war in decades.

In a stunning escalation of the 2-week-old contest for Anadarko, Buffett’s Berkshire Hathaway Inc. on Tuesday disclosed plans to inject $10 billion into Occidental in exchange for preferred stock and warrants. The bombshell landed in the midst of Anadarko board deliberations about whether Occidental’s offer is superior to a lower but already agreed-to deal with Chevron Corp.

The arrangement was announced two days after Occidental’s corporate jet flew to Buffett’s hometown of Omaha. It’s contingent on the deal for Anadarko closing and would be his biggest investment in more than three years aside from Apple Inc. It also answers the question about what to do with a swelling cash pile just ahead of Berkshire’s annual shareholder meeting this weekend.

Furthermore, the deal is a major sign of approval for the future of the Permian Basin, the world’s largest oil field, from an investor who has previously plowed dollars into oil refiners, drillers and Canada’s oil sands.

The Occidental deal follows Buffett’s classic playbook: getting above-market rates on a preferred stake and the upside of stock options in exchange for the Berkshire seal of approval and a big check. In the past he has lent his reputation to banks facing doubts about their capitalization, and now he’s backing a proposed acquisition bid that’s facing questions over its legitimacy.

Buffett’s imprimatur is apparently valuable to Occidental Chief Executive Vicki Hollub: The 8% that would be paid out on the preferred shares is more than twice the average coupon on Occidental’s debt.

Chevron stuck to its guns after Buffett’s move. “We believe our signed agreement with Anadarko provides the best value and the most certainty to Anadarko’s shareholders,” company spokesman Kent Robertson said in an email.

Chevron’s cash-andstock bid is valued at about $31.5 billion, or $62.70 a share.

Anadarko didn’t immediately respond to requests for comment.