Anadarko Shares Soar 16% As Occidental Launches Bidding War Against Chevron

Given the beating Anadarko shares have endured in recent months, it shouldn't come as a surprise that other major players in the American petroleum industry aren't willing to let Chevron buy the company without a fight. And on Wednesday, Occidental Petroleum kicked off what we imagine will become a hard-fought bidding war for Anadarko by offering $76 a share for the company, a roughly $10 premium over Chevron's bid.

In a letter to Anadarko's board, Occidental argued that its offer represented the better financial and strategic move for the Woodlands, Texas-based Anadarko.

"As you know Occidental has long admired Anadarko, and we believe that a combination of our two companies would create a global energy leader with a winning shareholder value proposition. Combining our highly complementary global asset portfolios would generate significant cost and capital synergies, attractive organic growth and a stable, sustainable and growing dividend. The resulting diverse but focused company will be a world leader in shale development and enhanced oil recovery."

Anadarko shares soared 16% in pre-market trading, roughly half of the intraday bump triggered by Chevron's offer. Anadarko's 50-50 cash and stock offer was valued at $56 billion, and represents a 20% premium over the value of the pending Chevron-Anadarko deal. Shareholders would receive $38 and 0.6094 shares of Occidental common stock for each share of Anadarko. Chevron's bid valued Anadarko at $33 billion.

Anadarko

Andarko’s assets include operations in the Permian Basin in West Texas and New Mexico, the epicenter of the shale boom that has launched the US ahead of Russia and Saudi Arabia to take the title of world's largest oil producer, and - briefly - a net exporter for the first time ever. Chevron sought to buy Anadarko after unveiling ambitious plans to grow its Permian operations. But although Occidental's offer is more appealing from a financial standpoint, there are complications that Anadarko must consider. Occidental's smaller size and balance sheet compared with Chevron means completing a deal is less likely. It's also unclear how Occidental would fund Anadarko's giant LNG plant in Mozambique. Under Occidental, that project might need to be scrapped or sold.

Read the full letter to Anadarko's board below:

As you know Occidental has long admired Anadarko, and we believe that a combination of our two companies would create a global energy leader with a winning shareholder value proposition. Combining our highly complementary global asset portfolios would generate significant cost and capital synergies, attractive organic growth and a stable, sustainable and growing dividend. The resulting diverse but focused company will be a world leader in shale development and enhanced oil recovery.

Since late March, Occidental has made three acquisition proposals to Anadarko that offered your shareholders a significant immediate premium as well as participation in value creation post closing. Each was significantly higher than the $65 per share transaction you announced on April 12. Our most recent proposal, conveyed in writing on the morning of April 11, followed by a merger agreement we were prepared to sign, was for $76 per share, comprised of 40% cash and 60% stock. We were surprised and disappointed that your Board did not engage with us on that proposal, or our proposal of April 8, even though both were significantly higher than the price you accepted from Chevron.

The transaction you announced with Chevron indicates that the Anadarko Board believes that $65 per share is a fair price for your shareholders. Occidental is hereby proposing to acquire Anadarko for $76 per share, comprised of $38 in cash and 0.6094 shares of Occidental common stock per Anadarko share.

Our proposal represents a premium of approximately 20% to the $63.46 per share value of Chevron's offer as of yesterday's close. The equity component also provides your shareholders an opportunity to continue to participate in the value creation of this exciting combination.

Our Board of Directors has unanimously approved our proposal, and we have executed financing commitments with BofA Merrill Lynch and Citi for the cash portion of our proposal. Our merger agreement will not contain any financing condition, and we do not anticipate any delay to completing the regulatory approval process. We would expect to seek the approval of the shareholders of both companies and close a transaction in the second half of 2019.

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.

We noted to you on April 8 that our due diligence is complete. As you are aware, our financial advisors are BofA Merrill Lynch and Citi, and our legal advisors are Cravath, Swaine & Moore LLP, and we and they are available to discuss any aspect of our proposal. We and our advisors have reviewed your merger agreement with Chevron. We are separately sending to you and your legal advisors a form of merger agreement on that basis which we would be prepared to enter into, subject to our agreeing to the disclosure schedules to be attached, together with a copy of our financing commitment letter.

We sincerely hope that you will act now to secure this compelling opportunity for your shareholders without further delay. Our proposal is superior for your shareholders, employees and other stakeholders, and we look forward to concluding the requisite formalities and executing an agreement expeditiously.