Occidental Petroleum has announced that it is offering to buy Anadarko Petroleum for US$38 billion, or US$76 per share. The deal, which is valued at US$57 billion including debt, comes less than two weeks after Chevron stated that it had agreed to acquire Anadarko in a deal valued at US$33 billion, or US$65 per share. The Chevron deal has a total enterprise value of US$50 billion including debt.
In a letter to Anadarko’s board of directors, Occidental’s president and CEO, Vicki Hollub, said that her company had made three acquisition proposals to Anadarko since late March. “Each was significantly higher than the US$65 per share transaction you announced on April 12,” she wrote. Indeed, it was reported on April 12 that Occidental had made an offer, but that there were some “structural issues” with it that may have compelled Anadarko to opt for the Chevron deal, according to sources cited by CNBC.
Hollub argued that her company could produce the best results from Anadarko’s Permian wells, making it the better buyer. She said that 75% of Anadarko’s value lay in its Permian assets, which are also thought to be the major reason that Chevron wants to buy the company.
Hollub said she considered the latest offer to be a friendly one, though Anadarko may not agree. The offer is 20% above the level Anadarko was trading at on April 23.
Anadarko confirmed that it had received the bid and was now weighing its options. The company would have to pay a US$1 billion break-up fee if it backs out of the Chevron deal.
Initial reactions included speculation that Chevron would likely engage in a bidding war and increase its own offer. If this happens, Chevron would likely win, given the resources at its disposal.
“We are confident the transaction agreed to by Chevron and Anadarko will be completed,” a Chevron spokesman, Kent Robertson, was quoted by Reuters as saying.
“Our initial take is that a potential deal would significantly elevate [Occidental’s] risk profile,” Tudor, Pickering, Holt & Co. analysts said in a note. The comments came as a follow-up to an earlier response, where they noted that Anadarko’s overall asset base was a more strategic fit with Chevron. “We continue to believe there are other potential deals on the market that are smaller in nature, offer more contiguous Permian acreage to [Occidental’s] existing position, and offer similar [general and administrative] synergies while generating [free cash flow],” they said.
A Morgan Stanley note, meanwhile, said: “While [Occidental’s] proposal would be accretive, it comes with higher leverage, more execution risk and less clear strategic value than [Chevron’s].”
Early expectations seem to be that Chevron will prevail. However, if it does not make a counter-offer, it is still possible – though by no means certain – that Anadarko would be willing to pay the break-up fee and go with Occidental’s offer.