Occidental Wins $38 Billion Bid for Anadarko as Chevron Bows Out

(Bloomberg) -- Occidental Petroleum Corp. will move forward with its $38 billion takeover of Anadarko Petroleum Corp., the oil industry’s biggest deal in at least four years, after Chevron Corp. bowed out of the bidding.

Anadarko said late on Thursday it reached a definitive agreement to sell itself to Occidental and that it has paid a $1 billion breakup fee to Chevron, which earlier elected not to sweeten its offer for the independent producer. The world’s third-largest oil explorer by market value said it will instead increase its share buybacks by 25%. Occidental confirmed it will go ahead with the acquisition.

Chevron’s departure left Occidental, a much smaller rival, free to proceed with a takeover that will double the acquirer’s daily output to the equivalent of more than 1.3 million barrels, on par with OPEC members Angola or Libya. The outcome also vindicates Occidental CEO Vicki Hollub, whose opening appeals to Anadarko were pilloried by prominent investors and analysts as an overreach.

“This exciting transaction will create a global energy leader with a world-class portfolio, proven operational capabilities and industry leading free cash flow metrics,” Hollub said in a statement. “This transaction further establishes Occidental as a premier operator in prolific global oil and gas regions.”

Since the bids became public last month, Occidental’s smaller size and financial resources relative to Chevron handicapped its pursuit of Anadarko. Houston-based Occidental’s stock was seen as a less-robust currency than Chevron’s, a defect Hollub cured by lining up support from Warren Buffett and Total SA, and upping the cash portion of her bid to 78% from 50%.

The higher cash portion also allowed her to pursue the deal without seeking shareholder approval, a move that triggered further backlash and that will likely put her and the board of directors on the defensive at the company’s annual general meeting on Friday.

Anadarko’s board embraced the Occidental proposal as superior on May 6, giving Chevron up to four days to come back with a revised offer. Anadarko was looking for Chevron to match or exceed Occidental’s proposal, people familiar with the matter said Wednesday. However, Chevron indicated that topping its rival’s offer was too risky.

"Winning in any environment doesn’t mean winning at any cost,” Chevron Chief Executive Officer Mike Wirth said in a statement. "Cost and capital discipline always matter, and we will not dilute our returns or erode value for our shareholders for the sake of doing a deal."

What Bloomberg Intelligence Says

"Occidental’s hard work is just beginning after Anadarko accepted its higher -- raised to 78% cash -- offer, while Chevron declined to match that. Although it seems Occidental has won the battle, we believe the higher cash offer blunts the requirement to win shareholder approval, which could alienate investors."

--Vincent G. Piazza, senior oil industry analyst
Click here to view the research

Chevron was entitled to the $1 billion breakup fee under the terms of its April 12 merger agreement, which Anadarko terminated.

“Chevron did exactly the right thing and walked away,” Mizuho Securities analyst Paul Sankey said in a note. He added that some Mizuho clients “hated that the last decently performing sector in energy -- mega-cap oil -- was potentially losing its capital discipline.”

Chevron rose 3.1% to $121.19 in New York. Occidental fell 6.4%, its biggest one-day decline since December 2014. Anadarko dropped 3.3% to $73.39.

For Chevron’s Wirth, the focus now shifts to what to do with the company’s $74 billion pile of cash and unused shares. One of the key attractions of Anadarko was its presence in the Permian Basin of West Texas and New Mexico, which has evolved into the world’s most prolific oil field. Replete with oil-exploration companies, the region may represent Chevron’s richest hunting ground.

--With assistance from Rachel Adams-Heard.

To contact the reporters on this story: Joe Carroll in Houston at jcarroll8@bloomberg.net;David Wethe in Houston at dwethe@bloomberg.net

To contact the editors responsible for this story: Simon Casey at scasey4@bloomberg.net, Carlos Caminada, Tina Davis

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