Occidental looks set to vastly increase the energy reserves it has access to with a $57bn bid for Anadarko Petroleum Corp.
The all-US deal is the third -biggest oil and gas industry M&A deal of the last 12 months. The biggest was Saudi Aramco’s $74bn deal to buy a majority stake in Saudi Basic Industries Corp.
Occidental made an unsolicited proposal to acquire Anadarko Petroleum Corporation for $76 per share in cash and stock valued at $57 billion, based on Occidental’s closing price on April 23, 2019.
The board of Texas-based Anadarko had said that it favoured the approach from Occidental to a previously agreed $50bn offer from Chevron made on 12 April.
But many shareholders of Occidental have indicated that they oppose the Anadarko deal.
The latest development on 6 May saw Occidental increase the cash aspect of its offer to $59 in cash and 0.2934 shares of Occidental common stock per share of Anadarko. This is reportedly a move which circumvents the need for an Occidental shareholder vote.
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By GlobalDataWarren Buffet’s Berkshire Hathaway has committed $10bn in funding for the deal to Occidental.
Occidental bid for Anadarko: Why is the deal happening?
Occidental is one of the five largest US oil and gas producers. The deal buys it new assets on the Gulf of Mexico and most significantly, major shale assets in the Permian Basin of Texas and New Mexico.
Occidental believes it can achieve synergies of $3.5bn a year by combining infrastructure with Anadarko.
According to GlobalData’s analysis, Occidental owns the largest acreage of any producer in the Permian Basin with 2.5m acres. This compares to 2.2m for Chevron Corp. The acquisition of Anadarko would bring Occidental’s total acreage up to 3.1m acres.
Occidental bid for Anadarko: What do analysts and experts say?
Investment firm T Rowe Price Group holds a 2.8% stake in Occidental and opposes the deal.
John Linehan, manager of the T. Rowe Price Equity Income fund, told Barron’s: “We’re very concerned about this deal and do not feel it’s in the best interests of shareholders.”
However, Daniel Jones of Crude Value Insights said: “This move is significant in size but it makes a lot of sense and generates a lot more value for Anadarko’s investors…
“Based on the data provided, this transaction more accurately reflects the fair value of Anadarko than Chevron’s deal, even if it is still on the low end of what probably should come to pass. At a minimum, it offers investors in Anadarko an opportunity, perhaps, to generate additional upside and it could start a bidding war for the oil and gas company.”
GlobalData’s Marketline service said that Anadarko would be better to stick with the original bid from Chevron: “In accepting the new Occidental bid, Anadarko will miss out on long-term benefits offered by the original Chevron takeover.
“Despite being highly prized, Anadarko has consistently made significant losses over the past few years. The sheer scale of Chevron means these could be absorbed relatively easily until sustained profitability can be achieved.
“Chevron offers the most direct route to such a future thanks to the massive economies of scale and ability to raise money that will be called upon.”