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Cramer: Occidental to Split 3-Ways?

(Click for video linked to a searchable transcript of this Mad Money segment)

From time to time Jim Cramer has advocated for spin-offs. That is, after examining a business carefully, he's become convinced that the best way to unlock shareholder value was for a company to break into separate parts.

After looking at the assets held by Occidental the Mad Money host is again calling for a spin-off. "The assets are too disparate to work under the same roof," he said.

Cramer may see it, but what matters to shareholders is whether CEO Steve Chazen sees it. Does he?

Quite possibly.

"Reports suggest that Occidental's management recognizes the problem and they're planning to do something about it," Cramer said. "Right now Occidental is in the middle of a multi-stage strategic review, with the final proposals put to the board of directors by mid-summer. From what the CEO has been saying, it's looking like the company will break itself up into at least two, maybe three pieces."

An engineer at the Zubair oil field in southern Iraq
Essam-Al-Sudani | AFP | Getty Images
An engineer at the Zubair oil field in southern Iraq

Here's how Cramer thinks a split could play out.

"The first step may be for Occidental to either spin-off or outright sell its international business, made up of assets in the Middle East and North Africa. That's something that should bring in around $20 billion," Cramer said.

The remaining company would be made up of Occidental's exploration and production assets in the Americas.

"I can see management splitting these into two separate companies. One would be a more value oriented pure play on the Permian Basin in Texas, with a hefty dividend. And the other would be a growth oriented operation centered around Occidental's unconventional holdings in North Dakota's Bakken shale and California's Monterey shale."

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In other words the company would split into:
1) an international oil company
2) a domestic dividend paying company based out of the Permian Basin
3) a domestic growth company built around its unconventional assets like the Bakken and Monterey shales.

Cramer said that Bank of America crunched the numbers and determined the international business could be worth $22 a share, while both American divisions together could be worth $126.

"Add those together and subtract the roughly $7 a share in net debt on the balance sheet, you get a $141 stock. That's 53% higher than where Occidental is right now, and those are just their base case numbers," Cramer said.

Now Cramer has a word of caution, it's not yet clear what management will do. Occidental may not adopt this plan.

However, he also doesn't think the wait will be indefinite. "It's likely we'll find out more on July 22nd when Occidental has its next conference call."

Cramer thinks if they do talk about a spin-off, shares could vault higher. And given the dynamics already in play, Cramer thinks the risk is worth the potential reward.

If you agree, July 22 will likely be a deciding day for this stock. "That gives you about seven weeks to build a position if you don't have one already," Cramer said.

Call Cramer: 1-800-743-CNBC

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