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Carl Icahn is seeing red.

In a letter Monday blasting Occidental Petroleum’s management and board, Icahn, the billionaire activist investor and Occidental shareholder, asserted that Warren Buffett took Occidental CEO Vicki Hollub “to the cleaners” when Occidental (ticker: OXY) agreed to issue $10 billion of preferred stock to Berkshire Hathaway (BRK.A) in late April. That preferred carries an 8% dividend yield, and Berkshire also got valuable warrants on Occidental stock.

Barron’s estimates that Occidental could have issued preferred stock at close to a 6.5% rate in the open market without having to give away any equity warrants. This is based on the trading level at the time in Occidental debt, prevailing yields on preferred stock, and discussions with investors familiar with the preferred market. Icahn argued that one unnamed large investor he knows “would have been happy to provide the financing without warrants.”

Icahn is seeking to replace several directors of Occidental through a complex two-step process in which he first needs 20% of Occidental holders to back his call for a record date for a vote. Icahn holds 33 million shares, a 4% stake.

Occidental is opposing Icahn’s efforts, arguing in a letter Monday that Icahn “does not understand or support the strategic and financial merits of the acquisition, and the Occidental Board believes that his Board nominees would interfere with the Company’s ability to successfully integrate Anadarko’s valuable assets and deliver on the promise of this acquisition at this critical juncture.”

The company had no immediate comment on Icahn’s criticism of the Berkshire deal.

The preferred was critical to Occidental’s winning campaign against Chevron (CVX) to buy Anadarko Petroleum (APC), as it allowed Occidental to increase the cash component of its bid and satisfy Anadarko’s board by eliminating the need for a vote by Occidental shareholders. The Chevron offer didn’t require a vote of its holders.

Anadarko was concerned that Occidental holders would vote down the $38 billion deal. The Berkshire preferred is contingent on the Occidental/Anadarko deal closing, which now looks likely.

Occidental paid a premium in part because it wanted a lot of money quickly and Berkshire CEO Buffett was willing and eager to write a $10 billion check on favorable terms. However, investors tell Barron’s that if Occidental had been willing to wait a few days, it could have raised a similar amount from institutional investors at a lower cost.

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If the company had issued preferred at 6.5%, Occidental would have saved $150 million annually—or about $1.5 billion over the minimum 10-year life of the securities. And the company wouldn’t have had to issue the equity warrants that Icahn valued at $1.2 billion. That adds up to more than $2.5 billion. Even if the preferred yielded 7%, Occidental would have saved $100 million a year.

Berkshire got 80 million warrants—which act like equity call options—struck at $62.50 with an 11-year maturity. Occidental shares closed down 71 cents at $51.80 Tuesday and have been battered—falling about 25%—since rumors surfaced of Occidental’s interest in Anadarko three months ago. Investors are concerned that Occidental is paying too much, taking on too much debt, and exposing itself to a potential drop in oil prices.

The preferred market is red hot, with Bank of America (BAC) recently issuing $1.4 billion in preferreds (BAC Preferred M) with a dividend yield of 5.375%. The market was trading at comparable levels on April 30 when Occidental reached the deal with Buffett for the preferred investment.

Occidental’s unsecured debt, the 4.20% issue due in 2028, trades with a 4.31% yield and was at a similar level back in April. Preferred, as a senior form of equity, almost always yields more than a company’s debt. Occidental didn’t have any preferred outstanding at the time of the Berkshire deal. Its senior debt rating of A3 from Moody’s Investors Service is higher than Bank of America’s at Baa1.

So it isn’t a stretch to assume that Occidental could have issued preferred at a yield of one percentage point higher than that prevailing on Bank of America preferred and that of other major banks.

The Occidental preferred sold to Berkshire is more attractive than bank preferreds because it can’t be redeemed for 10 years, while bank issues typically are callable in five years.

Write to Andrew Bary at andrew.bary@barrons.com