Occidental Starts A Bidding War With Chevron Over Anadarko

Chevron thought they had a deal to acquire Anadarko, but a new offer from Occidental will likely increase Chevron’s cost.

Most analysts — myself included — assumed that Anadarko’s agreement to be acquired by Chevron was a done deal. It still required approval by Anadarko shareholders, but that seemed like a formality.

Occidental Petroleum had made their own bid for Anadarko. In fact, it was more money than Chevron offered. Chevron’s offer would have given Anadarko’s shareholders 0.3869 shares of Chevron and $16.25 in cash for each Anadarko share. At the time the deal was announced, that was worth $65 a share and had been mostly in stock. Chevron would also assume Anadarko’s $17 billion debt.

Occidental had offered $70 a share, but Anadarko accepted Chevron’s lower offer, citing unspecified structural issues with the Occidental offer. But Occidental didn’t give up. Last week they offered $76 a share, consisting of half cash and stock.

Chevron’s shares have declined by 6.5% since it announced the deal. Thus, the deal to Anadarko’s shareholders is now worth less than $62 a share. At the same time, the decline knocked Chevron’s market capitalization down by $15 billion.

Occidental CEO Vicki Hollub made the case for her company on CNBC, arguing that Occidental’s experience in the Permian Basin is superior to Chevron’s:

We are the right acquirer for Anadarko Petroleum because we can get the most out of the shale. We have a lot more experience there. We are performing really, really well, and what hasn’t been talked about very much is that the upside in this deal is the shale play, is the shale development.”

It is true that Occidental is the leading producer in the Permian, but Chevron is right behind them in second place. Chevron is a much larger oil producer globally, and has a market cap nearly five times Occidental’s. They could acquire Occidental if they desired.

Anadarko’s management won’t be able to ignore Occidental’s offer, which at current share prices amounts to about a 22% premium over Chevron’s offer. Anadarko shareholders won’t approve the Chevron offer with the Occidental offer on the table.

But, given the synergies Chevron cited when it announced the deal, they are unlikely to walk away. They won’t have to increase their offer to the level of Occidental’s, because Occidental’s shareholders must still approve the offer. Chevron’s bid isn’t as risky because it doesn’t require shareholder approval.

Thus, we will probably see Chevron bump the offer a bit. When the dust settles, I believe they will still end up with Anadarko, but they are going to have pay more than they thought they would thanks to Occidental.

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