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Sideways: Buffett and Icahn – old dogs stick to old tricks

Veteran investor Carl Icahn has filed a lawsuit accusing Occidental Petroleum chief executive Vicki Hollub of being played by Warren Buffett in accepting aggressive terms for a $10 billion financing from Berkshire Hathaway to complete an agreed bid of around $56 billion for Anadarko.


Icahn – an endlessly litigious activist investor – used his trademark acerbic tone to complain about the deal.

He claimed that the terms of the Berkshire Hathaway preferred stock deal highlighted Hollub’s inexperience, saying that a “ninety-minute deal ‘negotiation’ with one of history’s canniest investors is no place to gain M&A experience – at least if you care about protecting your stockholders”.

Hollub isn’t the first chief executive to find herself under a withering attack from Icahn and she probably won’t be the last.

And she almost certainly won’t be the last chief executive to decide that the benefits of a public seal of approval and a quick delivery of funds from Warren Buffett outweigh the future costs of the tough terms he demands for providing finance.

During the 2008 global financial crisis, Buffett effectively rented out his reputation as well as his balance sheet with a $5 billion preferred stock deal that helped Goldman Sachs to calm fears about its health; and he performed a similar service for Bank of America in 2011 when it was struggling with enormous litigation costs.

Goldman’s chief executive at the time, Lloyd Blankfein, and BofA chief executive Brian Moynihan were both happy to pay a high yield and offer keenly-priced warrants to secure their deals, and today Berkshire Hathaway remains a major shareholder in both banks.

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