Anadarko Petroleum Corp.’s (APC.N) board has declared Occidental Petroleum Corp.’s sweetened US$38 billion takeover “superior,” giving Chevron Corp. four days to either boost its offer or walk away from the oil industry’s biggest deal in at least four years.
The announcement by Anadarko, which had rebuffed several prior bids from Occidental, comes almost a month after it agreed to be purchased by Chevron for US$33 billion. Chevron has so far refused to increase its offer, saying its proposal is a better long-term option for Anadarko shareholders. If it decides not to raise the bid, Chevron can walk away with a US$1 billion breakup fee.
The takeover of Anadarko has been a rare public fight for an oil industry that hasn’t seen many bidding wars. Occidental Chief Executive Officer Vicki Hollub’s recruitment of billionaire Warren Buffett and an US$8.8 billion accord to offload African oil and gas fields to Total SA appeared to have been key milestones in winning the board’s favor. Anadarko directors had previously chosen Chevron’s offer even though it was substantially cheaper than that of Occidental, which, as a smaller company, would have to take on much more leverage to do the deal.
“We think Chevron is likely to make a counter offer, but it may not be high enough to win the bid,” said Leo Mariani, an analyst at KeyBanc Capital Markets. Chevron, boosted by more valuable stock, will have to offer around US$70 a share to be considered by Anadarko, costing it an extra US$3.2 billion, he said.
The period for Chevron’s response may be extended under the terms of the original agreement, Anadarko said in a statement after the market closed Monday. Chevron declined to comment.
Chevron rose as much as 0.4 per cent to US$119 in after-hours trading in in New York. Occidental fell as much as 0.4 per cent. Anadarko rose 3.8 per cent in regular trading as investors anticipated a sweetened deal.
Chevron CEO Mike Wirth has signaled he’s willing to end his pursuit of a deal if the price gets so high that it imperils investor returns. “We strongly believe that the combination of our two companies create superior long-term value for shareholders of the combined company,” Wirth said on an April 26 earnings conference call.
While buying Anadarko would expand the producer’s presence in the Permian Basin, which is now the world’s largest oil patch, there are other operators in the region that Chevron could acquire. Chevron also has existing ambitious growth plans for the Permian.
Houston-based Occidental over the weekend pressed to alleviate any remaining concerns from Anadarko. It said Sunday that 78 per cent of the deal will be paid in cash, up from 50 per cent, and it got rid of the need for a shareholder vote, which had previously been cited as a sticking point for Anadarko’s directors.
“We have long been convinced that a strategic combination with Anadarko represents a compelling opportunity for the shareholders of both Occidental and Anadarko,” Occidental said in a statement after Anadarko accepted the suitor’s offer.
At least one major Occidental investor has signaled that it’s ready to break with the company’s board of directors. T. Rowe Price Group Inc. told Reuters it intends to vote against the board after the company eliminated the need for shareholder approval in its revised bid.
“With the OXY deal looking safer for APC to accept, I’d say this may force CVX to match the OXY bid or lose out on these terrific assets,” said Bill Nygren, chief investment officer of Harris Associates LP, which manages US$120 billion and owns about 3 per cent of Anadarko.
Further reading on the deal: Anadarko Shares Rise as Occidental Boosts Takeover Offer: Chart Occidental Says Anadarko’s Fleet of Corporate Jets Has Got to Go Occidental Seeks Edge Over Chevron Bid by Adding More Cash Total Aims to Firm Africa Top Spot in $8.8 Billion Anadarko Deal Carl Icahn Is Said to Build a Small Position in Occidental Buffett Gave Shareholders Something to Ask Him About: A Big Deal
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