The U.S. oil and gas firm Anadarko, a takeover target of Occidental Petroleum (Oxy) and Chevron, has said it will carefully review Oxy’s Wednesday bid and has advised shareholders not to take action regarding the Oxy bid.
As previously reported, Anadarko and Chevron on April 12 entered into a definitive agreement under which Chevron would acquire all of the outstanding shares of Anadarko in a stock and cash transaction valued at $33 billion, or $65 per share. Anadarko directors unanimously approved the proposed merger.
Oxy then on Wednesday, April 24, launched what it said was a superior bid for Anadarko takeover. Oxy said it would offer $76.00 per share, in which Anadarko shareholders would receive $38.00 in cash and 0.6094 shares of Occidental common stock for each share of Anadarko common stock.”
The 50-50 cash and stock transaction is valued at $57 billion, based on Occidental’s closing price on April 23, 2019, including the assumption of net debt and book value of non-controlling interest, Oxy said.
“Occidental’s proposal represents a premium of approximately 20% to the value of Anadarko’s pending transaction as of April 23, 2019,” Oxy said, adding that it believed its proposal was superior both financially and strategically for Anadarko’s shareholders, compared to Chevron bid.
Commenting on Oxy’s proposal, Anadarko said: “In accordance with the terms of the Chevron Merger Agreement, and in consultation with its financial and legal advisors, Anadarko’s board of directors will carefully review Occidental’s proposal to determine the course of action that it believes is in the best interest of the Company’s stockholders.
“The Anadarko board has not made any determination as to whether Occidental’s proposal constitutes, or could reasonably be expected to result in, a superior proposal under the terms of the Chevron Merger Agreement. The Anadarko board expects to respond to Occidental’s proposal upon completing its review and accordingly reaffirms its existing recommendation of the transaction with Chevron at this time. Anadarko stockholders are advised to take no action at this time,” Anadarko added.
$38 billion vs. $33 billion
Energy intelligence firm Wood Mackenzie, which has said that Oxy’s bid was $38 billion, versus Chevron’s $33 billion, has said the Oxy-Anadarko deal would put “Occidental alongside ConocoPhillips in a peer group of two, as a ‘super-independent.‘
Zoe Sutherland, corporate analyst at Wood Mackenzie, said: “The [proposed] deal underscores Occidental’s need to scale up in the Permian basin. If the deal goes through, it would give the company ExxonMobil or Chevron-like Permian scale, and set them up to join the million barrels of oil equivalent per day Permian club in the late 2020s, according to our base case.
“The deal highlights that diversity is still valued by US independents, and would mark Occidental’s entry into deepwater Gulf of Mexico and LNG.”
She added: “Financially, the deal would be a big stretch for Occidental. Its gearing ratio at the end of the fourth quarter was 25%. A potential transaction would materially increase the company’s leverage ratios, and stretch its balance sheet.”
Sutherland said that Occidental’s enhanced oil recovery (EOR) skills could unlock value from the expanded opportunity set.
“Occidental has a fantastic track record for EOR, and is currently the largest carbon dioxide injector in the Permian basin,” she added.
“In addition, Occidental has a track record of operating in areas of high geopolitical risk. It is less likely to divest the Algeria and Ghana components of Anadarko’s portfolio.”
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