How Berkshire's OxyChem Buy Cements Its Long-Term Strength

Key Points

• The recent OxyChem purchase demonstrates that the company is utilizing its substantial cash reserves to invest in stable, income-producing assets.
• This deal reinforces the company's long-standing value investing discipline and its focus on its circle of competence.
• The stock's valuation remains reasonable, offering investors stability in a market heavily influenced by tech-sector volatility.

In a market often captivated by fleeting trends, Berkshire Hathaway NYSE: BRK.A (BRK.B) has made a multi-billion-dollar statement of intent. The company announced a definitive agreement to acquire Occidental Petroleum’s NYSE: OXY chemical division, OxyChem, for $9.7 billion in cash. This transaction, its largest in three years, is more than Berkshire’s next major purchase; it is a powerful reaffirmation of the company's foundational strategy.

At a time when many investors are chasing high-growth momentum, Berkshire is using its massive cash pile to buy a profitable, real-world industrial asset. This decisive move signals a deep confidence in long-term value creation over short-term market sentiment, offering a clear signal to investors about the company's path forward.

Unpacking the $9.7 Billion Transaction

To understand the strategic importance of this acquisition, it is essential to look at the core components of the transaction. The deal is straightforward and aligns perfectly with Berkshire’s history of purchasing robust, understandable businesses that are leaders in their respective fields.

• The Target: Berkshire is acquiring OxyChem, a global producer of essential commodity chemicals. These are foundational materials for vital industries, including water treatment, pharmaceuticals, and healthcare. This business model provides a stable demand base. The division is a consistent performer, reporting a pre-tax income of $213 million for the second quarter of 2025 alone.
• The Price: The acquisition comes with a $9.7 billion price tag, to be paid entirely in cash. The deal is expected to close in the fourth quarter of 2025, pending regulatory approvals.
• The Capital Source: The purchase will be funded from Berkshire's immense reserves of cash and short-term U.S. Treasury bills, which stood at nearly $340 billion at the end of the last quarter.
• The Dual Benefit: The transaction also creates a positive feedback loop within Berkshire’s portfolio. Occidental Petroleum, the seller, plans to use $6.5 billion of the proceeds for debt reduction. This move significantly strengthens the balance sheet of a company in which Berkshire Hathaway is already the largest shareholder, enhancing the value of that existing investment.

The Strategy Behind the Spending

This acquisition is a classic execution of the strategy that has defined Berkshire Hathaway for decades. The company’s primary challenge has not been generating cash, but instead finding intelligent ways to deploy it. A massive cash pile, while safe, can create a cash drag on overall returns, as those funds earn very little compared to what a successful operating business can generate. By converting nearly $10 billion of this low-yielding cash into a profitable, wholly owned business, Berkshire is transforming a dormant asset into an active earnings engine.

The move represents a masterclass in value investing. Instead of venturing into the high-valuation technology sector, Berkshire is purchasing a durable, non-speculative business with a clear economic purpose. This reinforces the company’s focus on its circle of competence by investing in industries it understands deeply.

Furthermore, the announcement provides a clear signal about leadership continuity. Vice Chairman Greg Abel, the designated successor to Warren Buffett, was the key executive quoted on the transaction, underscoring his integral role in major capital allocation decisions. 

This demonstrates to investors that the core philosophy that built Berkshire is firmly in place for its next chapter. The decision is also notable for what it says about other potential uses of capital. With no share repurchases in the first half of the year, this acquisition demonstrates that management identified an external opportunity that it believed would create more long-term value for shareholders than repurchasing its own stock at current prices, a hallmark of its disciplined financial approach.

Stability in a Volatile World

For investors assessing Berkshire Hathaway stock, the OxyChem deal provides essential context for its recent performance and current valuation. Year-to-date, Berkshire’s shares have delivered a solid gain of approximately 10%. While this trails the S&P 500's return of around 14%, this performance gap reflects a deliberate strategic choice. The index's gains have been primarily driven by a handful of high-momentum technology and artificial intelligence (AI) stocks, an area Berkshire has traditionally viewed with caution. For long-term investors, the company's discipline provides a measure of stability against sector-specific volatility.

The company’s valuation remains reasonable and is supported by strong fundamentals. Its price-to-earnings ratio (P/E) of approximately 17 suggests the stock is not overvalued relative to its earnings. Furthermore, its price-to-book ratio (P/B) stands at 1.65, meaning investors are paying $1.65 for every dollar of the company's net assets. This is a common and justifiable premium for a business of Berkshire's quality and profitability. The price-to-sales ratio (P/S) of 2.89 highlights the company's substantial revenue-generating capacity in relation to its market capitalization.

Of course, no investment is without risk. Berkshire’s financial reports consistently highlight the significant legal and financial liabilities its subsidiary, PacifiCorp, faces from past wildfires. However, this risk must be viewed in the context of the parent company’s immense and diversified earnings base. Berkshire’s financial fortress is more than capable of managing this issue without threatening its overall financial health or long-term growth trajectory.

A Clear Choice for the Long Haul

The OxyChem acquisition is a clear and decisive action that reinforces the foundational strengths of Berkshire Hathaway. By converting idle cash into a productive asset, the company is prioritizing stable earnings over speculative gains. This disciplined approach solidifies Berkshire's status as a cornerstone investment for those focused on long-term value and financial strength.