Occidental Petroleum’s Quest for Anadarko Petroleum Receives a Boost

Occidental Petroleum (NYSE: OXY) is trying to hijack Chevron’s (NYSE: CVX) acquisition of Anadarko Petroleum (NYSE: APC) with a better offer, backed by the likes of Warren Buffett. As it turns out, Occidental is now looking to turn the screw on Chevron’s offer with a much better offer of its own that could go through without much opposition.

Read on to know what’s happened.

Occidental’s Deal Gets a Shot in the Arm

Chevron had offered $33 billion in cash and stock for Anadarko, a third of which would be in cash. But Occidental beat that with a $38 billion offer, with a 50-50 split between cash and stock.

But Occidental is now looking to sweeten the deal as it has reportedly sent a new offer to Anadarko that will give the latter’s shareholders 78% cash and 22% stock. In this way, Anadarko shareholders will receive more cash from the Occidental deal as compared to the Chevron deal.

As such, it won’t be surprising to see Occidental and Anadarko’s merger going through and Chevron falling by the wayside. That’s especially true because Occidental’s deal gives Anadarko shareholders a 23% premium over Chevron’s offer. What’s more, Occidental has been busy paving the way to ensure that its deal for Anadarko goes through without much resistance.

Occidental is Ensuring That the Deal Goes Through

Occidental has removed the need for a shareholder vote so that the deal goes through with certainty by increasing the cash component.

Occidental shareholders believe that the company is paying a big premium for Anadarko. Also, it is widely believed that the acquisition doesn’t make sense as both Occidental and Anadarko are Permian Basin players, so the former won’t get any diversity in assets after the acquisition.

That’s why investors believe that paying such a big sum for Anadarko doesn’t make sense, as any downturn in the oil pricing cycle will create more pressure on the balance sheet. But as it turns out, Occidental has taken steps to address these problems.

First, Occidental has announced that it will sell Anadarko’s African assets – in Ghana, Algeria, Mozambique, and South Africa – to French oil major Total SA for a price of $8.8 billion if the deal goes through. Such a move will allow Occidental to integrate Anadarko better into its operations, while also allowing the former to de-lever the balance sheet.

Second, Occidental has removed the need for a shareholder vote so that the deal goes through with certainty by increasing the cash component. Because Occidental will pay only 22% of the consideration in stock, the total number of shares that it needs to issue is now less than the issuance threshold that would have led to a shareholder vote.

Meanwhile, Anadarko shareholders will still need to vote on the deal, but it is likely that they will go with Occidental instead of Chevron because of the premium on offer.

In all, don’t be surprised if Occidental manages to successfully hijack Chevron’s offer, until and unless the latter comes up with a better one. Stay tuned for more updates to the deal to know how things play out in this acquisition saga.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.


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