Anadarko Petroleum Corporation (APC, $75.49, Hold; Target $76.00) -
Anticipating CVX Walks, Downgrading to Hold - Michael S. Scialla - We believe CVX
is unlikely to counter OXY's latest bid for APC, which is 12% above our prior price
target and values APC at a 15% premium to our bellwether peer group. We anticipate
the company will turn to one of several other Permian Basin-weighted options instead.
Bidding War for APC Update - May 7
Bidding War for APC Update - May 7
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Bidding War for APC Update - May 7
AP:
In a statement, Anadarko said it would terminate its merger agreement with Chevron in order to enter into a new one with Occidental. Chevron could not immediately be reached for comment.
The decision comes after Houston-based Oxy improved its offer on Sunday, adding a lot more cash to its cash-and-stock proposal to acquire Anadarko. That followed an agreement to sell nearly $9 billion of Anadarko's Africa assets to the French energy major Total, if the deal is finalized, and a commitment from Warren Buffett's Berkshire Hathaway to provide $10 billion to help finance Oxy's bid for Anadarko.
Occidental is much smaller than the California supermajor Chevron, but Oxy has proven itself determined to complete a deal it has pursued for nearly two years. The key prize in the contest: Anadarko's extensive holdings in the Permian Basin oil field in West Texas, where both Occidental and Chevron are leading producers.
"Oxy seems desperate to get this deal done," said Jennifer Rowland, an energy analyst with the financial services company Edward Jones. "They're like a pit bull that bites on and just won't let go."
Anadarko initially spurned Oxy for Chevron's smaller offer, considering Chevron a better fit and its stock - which accounted for 75 percent of its $33 billion offer - a safer, long-term value. Chevron and Anadarko previously agreed to a deal with Anadarko valued at $65 per share.
But Oxy offered about $38 billion at $76 per share, sweetening the cash-and-stock offer from 25 percent cash to nearly 80 percent cash, and eliminating the need for a shareholder vote at a time when a lot of Oxy investors have expressed concern, if not outright opposition, to the deal.
Oxy Chief Executive Vicki Hollub said Monday that she didn't necessarily want to eliminate the shareholder vote, but that it would help convince Anadarko's board to proceed with Oxy. It was either add more cash to the offer and ax the shareholder vote or increase the bid, she said.
"We saw the two options as increase the share price or provide clarity of closing," she said, choosing the latter option.
The Anadarko board of directors met Monday and finally decided to break up with Chevron and go with the Oxy offer it deemed superior.
Now that Oxy is offering so much cash, Chevron likely will have to match or exceed - or at least come very close to matching - the new Oxy deal, said Muhammed Ghulam, an energy analyst at the financial services company Raymond James. Before, Chevron could offer less and still win out.
"Chevron is not out of the game. It's a toss up," Ghulam said. "But the smart move would be to walk away and go buy something else."
Ghulam believes most Oxy shareholders have opposed the deal, including investors like T. Rowe Price and famed corporate raider Carl Icahn, because it means taking on a heavy debt load.
"This would be a feel-good story about the underdog winner if shareholders thought this was a good deal," he said.
Shareholders could still voice their opposition by voting against Oxy board members at its upcoming annual meeting.
The three companies involved in the takeover fight are all major employers in the Houston area. Anadarko has almost 2,000 local employees, primarily in its twin towers in The Woodlands, while Oxy employs nearly 3,000 here.
Oxy, which relocated from Los Angeles to Houston five years ago, plans to move its headquarters from Greenway Plaza to ConocoPhillips' old hub in the Energy Corridor. Chevron has offices in downtown Houston and employs about 7,000 area employees
Oxy, which is the leading producer in the Permian Basin for now, would acquire Anadarko's Permian position, its large production in Colorado's DJ Basin, one of the leading deepwater positions in the Gulf of Mexico, prospective acreage in Wyoming's Powder River Basin and positions in several South American nations.
Oxy would sell Anadarko's Africa assets for $8.8 billion to Total, including the multibillion-dollar Mozambique liquefied natural gas project slated to begin heavy construction this year. Oxy isn't in the LNG business while Total has the world's second-largest LNG portfolio after Royal Dutch Shell.
Although Oxy hasn't operated in the Gulf of Mexico for several years, Hollub said it values Anadarko's position there because it is a cash-generating machine. Oxy just wouldn't pursue expansion in the Gulf, she said.
U.S. shale, including the Permian and DJ basins would remain Oxy's strength, she said.
"We'll be able to further prioritize the best of the best in both of those basins," Hollub said. "The main driver of growth for us will continue to be our shale play."
In a statement, Anadarko said it would terminate its merger agreement with Chevron in order to enter into a new one with Occidental. Chevron could not immediately be reached for comment.
The decision comes after Houston-based Oxy improved its offer on Sunday, adding a lot more cash to its cash-and-stock proposal to acquire Anadarko. That followed an agreement to sell nearly $9 billion of Anadarko's Africa assets to the French energy major Total, if the deal is finalized, and a commitment from Warren Buffett's Berkshire Hathaway to provide $10 billion to help finance Oxy's bid for Anadarko.
Occidental is much smaller than the California supermajor Chevron, but Oxy has proven itself determined to complete a deal it has pursued for nearly two years. The key prize in the contest: Anadarko's extensive holdings in the Permian Basin oil field in West Texas, where both Occidental and Chevron are leading producers.
"Oxy seems desperate to get this deal done," said Jennifer Rowland, an energy analyst with the financial services company Edward Jones. "They're like a pit bull that bites on and just won't let go."
Anadarko initially spurned Oxy for Chevron's smaller offer, considering Chevron a better fit and its stock - which accounted for 75 percent of its $33 billion offer - a safer, long-term value. Chevron and Anadarko previously agreed to a deal with Anadarko valued at $65 per share.
But Oxy offered about $38 billion at $76 per share, sweetening the cash-and-stock offer from 25 percent cash to nearly 80 percent cash, and eliminating the need for a shareholder vote at a time when a lot of Oxy investors have expressed concern, if not outright opposition, to the deal.
Oxy Chief Executive Vicki Hollub said Monday that she didn't necessarily want to eliminate the shareholder vote, but that it would help convince Anadarko's board to proceed with Oxy. It was either add more cash to the offer and ax the shareholder vote or increase the bid, she said.
"We saw the two options as increase the share price or provide clarity of closing," she said, choosing the latter option.
The Anadarko board of directors met Monday and finally decided to break up with Chevron and go with the Oxy offer it deemed superior.
Now that Oxy is offering so much cash, Chevron likely will have to match or exceed - or at least come very close to matching - the new Oxy deal, said Muhammed Ghulam, an energy analyst at the financial services company Raymond James. Before, Chevron could offer less and still win out.
"Chevron is not out of the game. It's a toss up," Ghulam said. "But the smart move would be to walk away and go buy something else."
Ghulam believes most Oxy shareholders have opposed the deal, including investors like T. Rowe Price and famed corporate raider Carl Icahn, because it means taking on a heavy debt load.
"This would be a feel-good story about the underdog winner if shareholders thought this was a good deal," he said.
Shareholders could still voice their opposition by voting against Oxy board members at its upcoming annual meeting.
The three companies involved in the takeover fight are all major employers in the Houston area. Anadarko has almost 2,000 local employees, primarily in its twin towers in The Woodlands, while Oxy employs nearly 3,000 here.
Oxy, which relocated from Los Angeles to Houston five years ago, plans to move its headquarters from Greenway Plaza to ConocoPhillips' old hub in the Energy Corridor. Chevron has offices in downtown Houston and employs about 7,000 area employees
Oxy, which is the leading producer in the Permian Basin for now, would acquire Anadarko's Permian position, its large production in Colorado's DJ Basin, one of the leading deepwater positions in the Gulf of Mexico, prospective acreage in Wyoming's Powder River Basin and positions in several South American nations.
Oxy would sell Anadarko's Africa assets for $8.8 billion to Total, including the multibillion-dollar Mozambique liquefied natural gas project slated to begin heavy construction this year. Oxy isn't in the LNG business while Total has the world's second-largest LNG portfolio after Royal Dutch Shell.
Although Oxy hasn't operated in the Gulf of Mexico for several years, Hollub said it values Anadarko's position there because it is a cash-generating machine. Oxy just wouldn't pursue expansion in the Gulf, she said.
U.S. shale, including the Permian and DJ basins would remain Oxy's strength, she said.
"We'll be able to further prioritize the best of the best in both of those basins," Hollub said. "The main driver of growth for us will continue to be our shale play."
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group