From Bloomberg

Anadarko Petroleum Corp. plans to resume talks about a potential $38 billion takeover by Occidental Petroleum Corp., a move that threatens to scupper a previously agreed deal with Chevron Corp.

In a unanimous decision, Anadarko’s board of directors determined the Occidental bid “could reasonably be expected to result in a superior proposal,” the company said in a statement Monday. It added that an earlier agreement to merge with Chevron remains in effect.

The move sets the stage for Chevron to come back with a sweetened offer. Under the terms of the companies’ April 12 merger agreement, if Anadarko formally declares the Occidental offer to be superior, Chevron then has four days to make another proposal. While it has ample financial firepower to top Occidental’s offer, it may opt instead to avoid an expensive bidding war. Taking the $1 billion break-up fee that’s part of their accord and walking away would be an acceptable outcome for Chevron, Jefferies LLC analysts Jason Gammel and Daniela Almeida said.

“Chevron CEO Mike Wirth’s mantra is ‘costs matter,’” the analysts wrote in a note that came out just before the Anadarko statement. “Chevron’s primary rationale for the acquisition is return enhancement, which erodes as the cost increases.”

Anadarko shares were unchanged as $72.80 at 8:14 a.m. in early trading in New York, while Occidental dropped 1.2 percent. Chevron was little changed.

“We hope Anadarko will proceed quickly to securing this superior transaction for its shareholders,” Occidental spokeswoman Melissa Schoeb said in a statement.

The tussle for Anadarko has transfixed the oil industry over the past two weeks. A takeout of the company would be the largest deal in the sector in at least four years. Chevron and Occidental are targeting the company to expand their presence in the Permian Basin, the world’s largest oil patch.

Occidental went public April 24 with a bid to buy Anadarko for $76 per share in cash and stock. That compares with Chevron’s agreement to buy The Woodlands, Texas-based Anadarko for $65 a share.

Based on the current per-share valuations of the bids, Occidental’s proposal is about $7 billion higher than Chevron’s, compared with a difference about $5 billion when the deal was first announced. “We believe our signed agreement with Anadarko provides the best value and the most certainty to Anadarko’s shareholders,” Chevron said Monday in an emailed statement.

Investor Vote

That valuation gap has created pressure from investors. New York-based investment firm D.E. Shaw urged the company to run an open sale process, people familiar with the matter said last week.

Although Occidental’s offer is higher, the company’s smaller size and balance sheet compared with Chevron have raised uncertainty over its ability to complete a deal. Unlike Chevron, Occidental would also have to put the deal to a shareholder vote.

“We believe the market has already priced in a higher bid from Chevron,” Jefferies’ Gammel and Almeida said. “We don’t expect that a sweetened Chevron bid would need to meet Oxy’s given the Anadarko board’s evident preference for Chevron stock.”

From The Wall Street Journal

Anadarko Petroleum Corp. said it was considering Occidental PetroleumCorp.’s $38 billion offer, weeks after agreeing to be taken over by Chevron Corp. for  about $33 billion, raising the likelihood of a bidding war for assets in the heart of the U.S. fracking boom.

The declaration puts the onus on Chevron to raise its price or walk away from its deal for Anadarko, whose acreage in the Permian Basin of West Texas and New Mexico is coveted by both Chevron and Occidental as a path to further expansion.

Chevron’s deal with Anadarko includes a $1 billion breakup fee, a factor that may not make it necessary for Chevron to completely match the Occidental offer. While Chevron can afford to raise its price significantly, some analysts have urged the company to proceed with caution given the existence of other potential targets.

The Anadarko board met Sunday and unanimously voted to reopen discussions with Occidental. Occidental Chief Executive Vicki Hollub said in an interview last week that the company had been in discussions with Anadarko for almost two years and made several offers in the weeks before the Chevron transaction announcement on April 12 that were ignored by Anadarko executives.

Shareholders in recent days had pressured Anadarko to openly consider both suitors and criticized the board’s decision to increase executive payouts on April 11 by millions of dollars.

The vote was “an inexcusable breach of corporate governance,” said Matthew Halbower, chief executive of hedge fund Pentwater Capital Management, in a letter Thursday. Pentwater owns about 7 million Anadarko shares.

Anadarko said its merger agreement with Chevron remains intact and the board currently “reaffirms its existing recommendation of the transaction.” However, the agreement allows the board to resume negotiations with Occidental to seek a superior proposal.

A Chevron spokesman said in a statement that the company believes its agreement with Anadarko provides the best value and most certainty to Anadarko shareholders.

An Occidental spokeswoman said the company hopes Anadarko will move quickly to secure its “superior” transaction.

Shares of Occidental fell 1.5% in morning trading while shares of Anadarko declined 0.1%. Chevron’s shares were unchanged.

Last week, Occidental offered Anadarko a cash-and-stock deal of $76 a share—or about $11 a share more than the value of the Chevron transaction on the day it was announced, April 12. Occidental’s offer would mean $38 in cash and 0.6094 of a share of Occidental stock per each of Anadarko’s stock.

Anadarko had entered an agreement with Chevron to be acquired in a cash-and-stock deal where shareholders would receive $16.25 in cash and 0.3869 of a share of Chevron stock per each of Anadarko common shares.

From Reuters

Anadarko Petroleum Corp said on Monday it would negotiate with Occidental Petroleum Corp over its $38 billion cash-and-stock bid, after determining it could get a better deal than its agreed $33 billion sale to Chevron Corp.

The development represents a breakthrough in Occidental Chief Executive Vicki Hollub’s two-year effort to buy Anadarko, one of the top U.S. oil and gas producers in the lucrative Permian Basin in Texas and New Mexico. Anadarko announced a deal with Chevron on April 12 after snubbing a higher bid from Occidental, prompting Occidental to try to upend the Chevron deal.

“We hope Anadarko will proceed quickly to secure this superior transaction for its shareholders,” an Occidental spokeswoman said.

Anadarko said its board had unanimously decided that Occidental’s offer could result in a “superior proposal” but added that its deal with Chevron remained in effect until it decided to cut a new deal with Occidental.

Anadarko asked Chevron on Sunday if it wanted to raise its bid and Chevron declined, people familiar with the matter told Reuters on Monday.

Chevron is reluctant to pay more for Anadarko and does not want to be drawn into a bidding war, the sources said. Chevron also wants to see if Occidental will manage to ink a deal for Anadarko, and whether Occidental shareholders will support it, one of the sources said.

“We believe our signed agreement with Anadarko provides the best value and the most certainty to Anadarko’s shareholders,” Chevron said in a statement on Monday.

Chevron and Occidental are vying for one of the biggest prizes in the oil industry: Anadarko’s nearly quarter-million-acre holdings in the core of the Permian Basin, the top U.S. shale field.

The two companies each control land adjacent to Anadarko’s properties and expect a deal will add deposits that can produce supplies for decades using low-cost drilling techniques.

Occidental unveiled its bid for Anadarko last Wednesday, offering to pay for it half in cash and half with its own shares. Chevron’s deal with Anadarko was structured as 25 percent cash and 75 percent stock. Occidental’s stock was down 2.38 percent to $59.85.

Anadarko shares were up 0.4 percent to $73.05, slightly below the value of Occidental’s offer.


Under the terms of the merger agreement, Chevron has four days after being notified by Anadarko’s board to respond with a counter-offer. If Anadarko proceeds with a sale to Occidental, it will have to pay Chevron a $1 billion deal breakup fee.

The acquisition of Anadarko would add nearly a quarter million acres to Occidental’s holdings in the Permian shale basin, and double its global oil and gas production to 1.4 million barrels of oil equivalent per day.

A key hurdle that Occidental has to overcome in its negotiations with Anadarko is that its proposed deal is contingent on Occidental shareholders voting to approve it.

These could make a deal more vulnerable to shareholder agitation. For example, activist hedge fund Starboard Value LP tried to shoot down Bristol-Myers Co’s $74 billion deal to acquire biotech Celgene Corp earlier this year by trying to convince Bristol-Myers shareholders to vote it down. It was ultimately unsuccessful.

A deal with Chevron offers more certainty to Anadarko in that regard, because Chevron shareholders will not be given a vote. Anadarko shareholders will be given a vote on the sale of the company, be it with Occidental or Chevron.

Chevron and Occidental also have put forward different estimates on the value of the operational synergies they can derive from Anadarko. Chevron projects the synergies to be worth $1 billion a year, while Occidental says it can extract $2 billion annually in synergies.

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