Occidental seeks edge over Chevron’s bid for Anadarko by sweetening its own offer with more cash

Occidental Petroleum Corp. moved a step closer to sealing its proposed US$38-billion acquisition of Anadarko Petroleum Corp. after it sweetened its offer and agreed to sell assets owned by the target company.

Occidental increased the cash portion of its bid to 78 per cent from 50 per cent on Sunday. It also pledged to cover the US$1-billion breakup fee Anadarko would have to pay for abandoning an already-agreed to deal with Chevron Corp., and said Occidental shareholders won’t be required to vote on the takeover.

The heftier buyout proposal came just hours after French energy giant Total SA agreed to buy operations in four African nations for US$8.8 billion, contingent upon Occidental completing a takeover of Texas-based Anadarko.

The Total agreement augments billionaire Warren Buffett’s US$10-billion commitment to Occidental, which has faced investor criticism for its unsolicited April 24 offer to best Chevron’s takeover of Anadarko. While Occidental is a storied name in American oil and operates across three continents, it’s just one-fifth Chevron’s market value and its pursuit of Anadarko was seen by some as quixotic.

Occidental Chief Executive Officer Vicki Hollub, who has been pursuing Anadarko for almost two years, has grown frustrated at the company’s unwillingness to acquiesce to her advances.

“We remain perplexed at your apparent resistance to obtaining far more value for Anadarko shareholders which has been expressed clearly through our interactions over the last week,” Hollub said in a letter to Anadarko’s board dated Sunday.

Stunning Rebuff

Anadarko said in a statement that it will review the revised offer and reaffirmed its existing recommendation to shareholders to accept the Chevron deal.

The Total agreement may ameliorate concerns that Occidental would take on too much debt and shorten the amount of time the company would be out of the market for share buybacks, said Bill Nygren, chief investment officer of Harris Associates LP, which manages US$120 billion and owns about 3 per cent of Anadarko.

An Occidental-Anadarko accord would be a stunning rebuff for Chevron CEO Mike Wirth just 15 months into his tenure at the head of the world’s third-largest oil explorer by market value. Sunday’s emergence of Total as an Occidental ally pits two of the world’s supermajor oil drillers on opposite sides of the industry’s biggest takeover battle in years.

Gulfstream V

Hollub has pursued Anadarko amid on-and-off talks since late 2017, to no avail.

In an apparent acknowledgment that more was needed to get the deal across the line, Hollub flew to Omaha, Nebraska, on April 28 to visit Buffett. The legendary investor announced two days later he had agreed to pay US$10 billion in exchange for a slug of Occidental preferred stock and warrants, contingent on a successful takeover of Anadarko.

“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,” Nygren said in an email, referring to the stock tickers of the suitors and target.

Icahn Arrives

At the heart of the tug-of-war over Anadarko is a fight for supremacy in the Permian Basin, the world’s largest oil patch. Chevron announced an ambitious, multibillion-dollar plan earlier this year to boost its fracking activities in the region, and buying Anadarko would turbo-boost its Permian growth. For Occidental, the deal is about securing its position as the dominant producer in the basin.

Buying Anadarko would be the biggest oil industry deal in four years and mark an end to an era of austerity among explorers chastened by a decline in crude prices and chastised by investors for poor returns. The pressure on Occidental and Chevron shares in the past two weeks showed investors were worried the industry was returning to the old ways, when profligate spending and bold deals were de rigueur.

Indeed, the controversy stirred up by Occidental’s bid appears to have attracted another interloper. Billionaire activist investor Carl Icahn has built a small stake in the company, people familiar with the matter said on May 3.

What Bloomberg Intelligence Says

“Carl Icahn’s minor Occidental Petroleum stake may not be enough to reframe the debate over Anadarko, even as some shareholders remain skeptical of both the deal’s impact and the costs Berkshire extracted to help finance it. We believe Icahn is making a push to sway the outcome, as he has a stake in the Permian, Occidental’s prime motivator in pursuing Anadarko. Icahn inherited a position in Diamondback Energy, a midsized Permian E&P firm, through its purchase of Energen, a holding he initially pushed to seek alternatives. If Icahn can derail Occidental’s bid for Anadarko, the former would pursue a better-fitting, more digestible E&P target with a stronger concentration in the basin.” — Vincent G. Piazza, senior industry analyst, and Evan Lee, associate analyst

Occidental shares rose in after-market trading on Friday after the news of Icahn’s involvement, signalling that fresh doubt about the deal’s prospects was a positive catalyst for investors. On Monday, following the Total accord and the revised takeover offer, they had erased those gains and were down 1.6 per cent. Anadarko rose as much as 2.4 per cent to US$74.50. Chevron was unchanged.

Four Days

Anadarko doesn’t just operate in the Permian, and both bidders face being saddled with unwanted assets — Chevron has also said it will sell off billions of dollars of operations post merger.

The Total deal means the French company will take on oil operations in Ghana, Algeria and South Africa, as well as a massive liquefied natural gas project in Mozambique. Total is already a major player in LNG while Occidental has no current involvement in that market and had already indicated that it was looking to sell the facility.

Investors now await a decision from the Anadarko board. Having previously rebuffed proposals from Occidental for more than a year, Anadarko agreed to start negotiations with the company even before the cash portion was lifted late Sunday. If Anadarko recommends a merger with Occidental, Chevron will have four days to make a counter offer or walk away.

–With assistance from Kevin Crowley.


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