By Bradley Olson and Rebecca Elliott
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (April 25, 2019).
Occidental Petroleum Corp. offered to buy Anadarko Petroleum
Corp. for $38 billion, launching a potential bidding war for a
company that agreed earlier this month to be purchased by Chevron
Corp. for about $33 billion.
The competition for Anadarko, which has prized assets from the
heart of the West Texas oil boom to East Africa, is set to
intensify as Chevron considers whether it will make a counteroffer,
a step that some analysts and shareholders now expect.
Anadarko's handling of the offers is also sure to raise
questions among investors about whether it was too quick to strike
a deal with Chevron, given Occidental's interest. A day before
announcing a deal with Chevron, Anadarko's board boosted the
potential payout Chief Executive Al Walker and other top leaders
would receive in the event of a sale by millions of dollars, The
Wall Street Journal reported Tuesday.
Anadarko said in a written statement Wednesday that its board
hasn't determined whether it views Occidental's offer as better
than Chevron's, adding that it would respond to Occidental after
reviewing the bid. In the meantime, the board continues to
recommend a deal with Chevron, the company said.
Occidental Chief Executive Vicki Hollub said Anadarko ignored
two offers it made in the week before the April 12 deal
announcement with Chevron, including a written offer April 11 that
would have represented a 20% premium to that transaction.
In an interview, Ms. Hollub said that she had first engaged in
talks with Mr. Walker about a possible deal in July 2017, and that
Occidental had made serious overtures since late March. But that
communication, she said, ended abruptly earlier this month when he
stopped responding to calls, emails and text messages.
"We have a superior proposal," she said, adding that the
Houston-based company enhanced its offer with more cash to entice
Anadarko shareholders.
A spokesman for Chevron said the company is "confident the
transaction agreed to by Chevron and Anadarko will be completed."
He earlier said Chevron wasn't aware of any Occidental discussions
with Anadarko during its negotiations with the company, after
reports of Occidental's interest.
Before Occidental went public with its offer Wednesday, Chevron
Chief Executive Mike Wirth said in an interview with the Journal
that he didn't anticipate improving the company's offer.
Several large shareholders in both companies had previously said
they preferred the Chevron combination because of its larger size
and the degree to which it could more easily absorb Anadarko and
avoid any financial strain. But the investor response to
Occidental's offer Wednesday was generally positive, given that it
is both higher and includes more cash.
Occidental is offering 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. The offer, $38 in cash and
0.6094 share of Occidental stock, represents a 20% premium to the
Chevron agreement as of Tuesday's close. Occidental's offer was
valued at $57 billion including debt.
Chevron intends to buy Anadarko in a cash-and-stock deal valued
at $33 billion. In that agreement, shareholders would receive
0.3869 share of Chevron and $16.25 in cash per share.
Shares of Anadarko rose 12% Wednesday amid the news, while
Occidental's stock fell 0.6%. Chevron shares sank 3.1%.
If Anadarko were to accept Occidental's offer, the company plans
to finance the cash portion of the transaction with a bridge loan.
Its debt levels would increase for about a year, but would
ultimately fall as Occidental plans for billions in asset sales,
according to a person familiar with the offer. The company expects
that its credit rating would remain at investment-grade levels.
Occidental's primary case for the deal is that it will be
positioned to reduce costs significantly and expand its footprint
in the booming Permian Basin, an area where it is already one of
the largest operators. The deal would allow Occidental to achieve
economies of scale in the region, a step giant companies such as
Chevron and Exxon Mobil Corp. have been taking.
Acquiring Anadarko also likely would help Occidental fulfill a
longtime priority of increasing its dividend while reducing the
burden of making those payments, though it would make the company
more highly leveraged, analysts for Bank of America Merrill Lynch
wrote prior to the deal.
"Financially, the deal would be a big stretch for Occidental,"
said Zoe Sutherland, an analyst at Wood Mackenzie. "A potential
transaction would materially increase the company's leverage
ratios, and stretch its balance sheet."
Ms. Hollub said in the Wednesday interview that while she had
been making direct overtures to Mr. Walker since late March, he
stopped responding entirely in the days before Anadarko agreed to a
deal with Chevron.
In a letter to Anadarko's board, Occidental expressed
frustration with Anadarko, which agreed to pay a $1 billion breakup
fee with Chevron if that deal doesn't go through. "It is
unfortunate that Anadarko agreed to pay a break up fee of $1
billion, representing approximately $2 per share, without even
picking up the phone to speak to us after we made two proposals
during the week of April 8 that were at a significantly higher
value to the transaction you were apparently negotiating with
Chevron," Ms. Hollub said in the letter.
Tom McNulty, a managing director for consulting firm Great
American Group Advisory & Valuation Services LLC, said an
Anadarko acquisition would be strategically beneficial for both
Occidental and Chevron, but added that Chevron's larger platform
gave it greater flexibility.
"If it turns into a bidding war, then you're going to start to
see it reach the upper limits of where valuation will make sense,"
he said.
Micah Maidenberg contributed to this article.
Write to Bradley Olson at Bradley.Olson@wsj.com and Rebecca
Elliott at rebecca.elliott@wsj.com
(END) Dow Jones Newswires
April 25, 2019 02:47 ET (06:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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