Oxy in swoop for Anadarko. Says its bid superior to Chevron’s

The U.S. oil firm Occidental Petroleum has entered a race with Chevron to buy Anadarko Petroleum. Oxy on Wednesday said the 50-50 cash and stock transaction was valued at $57 billion. The news follows last week’s Chevron’s bid to buy Anadarko, also in stock-cash combination, valued at $50 billion. 

Occidental Petroleum on Wednesday said it had delivered a letter to the Board of Directors of Anadarko Petroleum Corporation “setting forth the terms of a superior proposal by Occidental to acquire Anadarko for $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.”

“Occidental’s proposal represents a premium of approximately 20% to the value of Anadarko’s pending transaction as of April 23, 2019,” Oxy said.

“Occidental believes its proposal is superior both financially and strategically for Anadarko’s shareholders, creating a global energy leader with the scale and geographic diversification to drive growth and deliver compelling value and returns to the shareholders of both companies.”

“The combined company will be uniquely positioned to leverage Occidental’s demonstrated operational and technical expertise, producing greater anticipated synergies than Anadarko’s pending transaction. 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.”

As for the Chevron bid revealed on April 12, based on Chevron’s closing price on April 11, 2019, Anadarko shareholders would receive 0.3869 shares of Chevron and $16.25 in cash for each Anadarko share. The total enterprise value of the Anadarko – Chevron transaction is $50 billion.

Related: Chevron moves to buy Anadarko in $33 billion stock and cash deal

The Chevron-Anadarko transaction has been approved by the Boards of Directors of both companies and is subject to Anadarko shareholder approval. It is also subject to regulatory approvals and other customary closing conditions.

Worth noting, Oxy has also revealed it has since March made three acquisition proposals to Anadarko, which, Oxy says, offered Anadarko’s “shareholders a significant immediate premium as well as participation in value creation post-closing.” (See full letter sent to Anadarko below.)

“We have been focused on Anadarko for several years because we have long believed that we are ideally positioned to generate compelling value from a combination with them.” 

Vicki Hollub, President and Chief Executive Officer of Occidental: “Occidental is a leader in using technological innovation to create value, and we will deploy our expertise to enhance the performance and productivity of Anadarko’s assets not only in the Permian but globally.”

“Occidental and Anadarko have a highly complementary asset portfolio, providing us with a unique opportunity to realize significant operating, cost, and capital allocation synergies and achieve near-term cash flow accretion.”

The CEO added: “We have been focused on Anadarko for several years because we have long believed that we are ideally positioned to generate compelling value from a combination with them. We look forward to engaging immediately with Anadarko’s Board and stakeholders to deliver this superior transaction.”

Oxy says the proposed Anadarko transaction would boost its Occidental’s position as the largest producer in the Permian with 533 thousand Boe/d of production.

“Adding to Occidental’s existing, cash flow generating international and chemicals portfolio, Anadarko’s industry-leading DJ Basin operations combined with its cash flow generating assets in the Gulf of Mexico, Algeria and Ghana, provide complementary growth and enhanced stability. The combined company’s asset base is expected to supply low-cost development opportunities to fuel high return growth for years to come,” Oxy said.

Furthermore, Oxy says it has identified $3.5 billion in annual free cash flow improvements that are expected to be fully achieved by 2021, comprised of $2 billion in annual pre-tax run-rate cost synergies, and $1.5 billion of capital reduction, with the potential for further upside.

The annual capital reduction would be delivered in the first year and result in moderating near-term production growth from 10% to 5% on a combined basis, OXY said.

See below Oxy’s full Letter to Anadarko Board 

“Dear Members of the Anadarko Board of Directors:

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.”