Signs point to Anadarko offer coming in well below what Apache would consider
Anadarko Petroleum Corp. (ticker: APC) announced today that it will retract its unsolicited offer for an all-stock purchase of Apache Corp. (ticker: APA). Anadarko Chairman, President and CEO Al Walker said today that the offer was rejected, “and no discussion of substance occurred,” prompting APC to back away from further negotiations.
Walker said the deal included “a modest premium,” and would have been highly accretive to Anadarko on a cash flow per-share (CFPS) basis, even before synergies. Walker went on to say that, given Apache’s, “historic financial and operating underperformance,” the deal would have offered shareholders of both companies value-creation opportunities.
The press release went on to say that Anadarko would not pursue further negotiations without access to non-public information, indicating that Apache declined to enter into a confidentiality agreement with APC. David Tameron at Wells Fargo Equity Research noted “Apache’s board rejected the prior offer without entering into a confidentiality agreement, which tells us it didn’t believe that APC’s offer was even close else it would have negotiated.”
Wells Fargo estimated a “modest” premium at 10%, giving the deal an estimated value of $27.2 billion. “Without synergies, indicated transaction would have been EPS dilutive in 2016 but accretive in 2017,” said the analyst’s note.
In EnerCom’s E&P Weekly, Anadarko has a CFPS of $8.91, while Apache’s CFPS is $1.68 higher at $10.59, but APC’s price per CFPS (P/CFPS) ratio of 7.7x is well above APA’s 4.5x. The group median for P/CFPS in the 84-company E&P Weekly is 4.1x.
A note from UBS today pointed out that more bids for Apache were unlikely given that many large integrated oil and gas companies are not currently to acquire U.S. E&P companies. “We believe most willing acquirers will hold out until more distressed opportunities arise,” the UBS note read.