Under the deal announced April 12, Chevron would have paid the equivalent of $US65 per share – including 25 per cent in cash – for Anadarko, which is prized for its assets in the oil-abundant Permian Basin. But Occidental countered with $US76 a share, half in cash and half in stock.
Buffett’s Berkshire Hathaway then stepped in with $US10 billion in financing, prompting Occidental on Sunday to raise the cash portion of its offer to 78 per cent , or $US59 a share. Berkshire will own Oxy preferred shares that pay an 8 per cent annual premium.
On Monday, Anadarko declared Occidental’s bid “a superior proposal,” and its board informed Chevron of its intent to terminate their $US33 billion deal. The notification gave Chevron four business days to respond or ask for an extension. Chevron also had the right to walk away with its $US1 billion breakup fee – and it exercised that right Thursday.
“If there was any doubt that Chevron is cost-disciplined, this should end it,” said analyst Stewart Glickman of CFRA Research. “They won’t get dragged into a protracted bidding war, and they walk away $US1 billion richer, which they are plowing into buybacks.”
Occidental, known for its substantial shale oil assets and its expertise in extracting them, wanted Anadarko badly.
Anadarko is prized for its oil fields in the Permian Basin across west Texas and eastern New Mexico. Many analysts called Chevron’s global assets, including deepwater drilling and liquefied natural gas, a better strategic fit for Anadarko.
Their combination would have made Chevron the second-largest crude producer in the world, capable of churning out an estimated 3.9 million barrels of oil equivalents per day.
Chevron’s decision to fold surprised some analysts.
“I am a bit surprised [Chevron] walked, but am pleased that they didn’t get caught up in a bidding war with Oxy, who comes across as willing to fight to win at all costs,” said energy analyst Jennifer Rowland of Edward Jones.
“Chevron demonstrates strong capital discipline and focus on shareholder returns, which is what investors should want to see, especially from a (oil) major.”
Chevron shares were up 2.4 per cent in mid-morning trading Thursday. Occidental was down more than 6 per cent . And Anadarko slid 3 per cent .
Chevron said it would use the $US1 billion windfall to increase its stock buybacks by 25 per cent to $US5 billion.