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Warren Buffett's Berkshire Hathaway Inc (NYSE:BRK) (NYSE:BRK) isn't just buying a business — it's buying a cash machine with staying power. The conglomerate is reportedly in advanced talks to acquire Occidental Petroleum Corp's (NYSE:OXY) petrochemical unit, OxyChem, for around $10 billion, despite the company generating roughly $5 billion in annual revenue.
At first glance, it may seem steep, but a deeper look reveals why this deal fits perfectly with Buffett's playbook.
OxyChem produces critical chemicals such as chlorine, caustic soda, and PVC, used in water treatment, pharmaceuticals, and construction. These products are consistently in demand, providing the unit with predictable, recession-resistant revenue.
For Buffett, businesses with steady cash flows are worth paying a premium for — even if the top-line isn't eye-popping.
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Revenue alone doesn't tell the story. Petrochemical operations, such as OxyChem, often enjoy 20–30% EBITDA margins, resulting in a significant profit relative to sales. Occidental Petroleum’s overall EBITDA margin for 2024 was approximately 47.85%, implying OxyChem must also be generating decent margins.
Combined with a strong U.S. market position, this makes OxyChem a durable, high-quality business — precisely the type Buffett likes to hold for decades.
Beyond cash flows, OxyChem offers exposure to inflation-linked revenue, as chemical prices often adjust with commodity costs. There's also potential for operational efficiencies and long-term growth, which could enhance returns beyond the current valuation.
For Berkshire, this isn't a short-term play — it's a long-term bet on essential American industry.
Paying $10 billion for $5 billion in revenue might raise eyebrows, but for Buffett, it's about stability, profitability, and strategic value. OxyChem represents a reliable, cash-generating asset that fits Berkshire Hathaway's formula: buy high-quality businesses, hold them for decades, and let the cash flow compound.
For investors, this deal serves as a reminder that revenue alone doesn't tell the whole story — quality, durability, and predictability can justify paying a premium.
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