Anadarko Is Likely to Accept Revised Occidental Bid Monday

(Bloomberg) -- Anadarko Petroleum Corp.’s board of directors is likely to decide Monday that Occidental Petroleum Corp.’s sweetened $38 billion takeover bid is superior to Chevron Corp.’s, according to a person familiar with the matter.

The board is set to meet after Occidental boosted the cash portion of its proposal, said the person, who asked not to be identified because the deliberations are private. The Houston-based company said Sunday that 78 percent of the deal will be paid in cash, up from 50 percent, and it has eliminated the need for a shareholder vote, which had previously been cited as a sticking point for Anadarko’s directors.

Occidental also pledged to cover the $1 billion breakup fee Anadarko would have to pay for abandoning an already-agreed to deal with Chevron. Anadarko jumped 3.4 percent to $75.21 at 10:23 a.m. in New York, the best performer in the S&P 500 Index, while Occidental rose 1.1 percent and Chevron climbed 2 percent.

“Clarity of closing was the lower-cost” option over raising the offer, Occidental Chief Executive Officer Vicki Hollub said on a conference call Monday. “Our objective in doing this was not at all to avoid the shareholder vote. It was to ensure that we had a reasonable chance to make this happen.”

Once Anadarko’s board officially decides to move forward with an Occidental deal, Chevron will have four days to come back with a higher bid. Losing out on Anadarko accord 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 France’s Total SA 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.

‘Clarity of Closing’

The heftier buyout proposal from Occidental came just hours after Total agreed to buy operations in four African nations for $8.8 billion, contingent upon Occidental completing a takeover of Anadarko.

The Total agreement augments billionaire Warren Buffett’s $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.

Anadarko Is Likely to Accept Revised Occidental Bid Monday

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

Following Occidental’s revised bid, Anadarko said in a statement that it will review the offer and reaffirmed its existing recommendation to shareholders to accept the Chevron deal. CNBC reported earlier on the likelihood of a Monday board decision.

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 $120 billion and owns about 3 percent of Anadarko.

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 $10 billion in exchange for a slug of Occidental preferred stock and warrants, contingent on a successful takeover of Anadarko.

Anadarko Is Likely to Accept Revised Occidental Bid Monday

“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
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