Anadarko bidder Occidental finds investors on board

27 April 2019 - 12:45 am UTC

Occidental Petroleum [NYSE:OXY] is seeing its investors warm up to its USD 38bn bid for Anadarko Petroleum [NYSE:APC], said two sources familiar with the situation and an Occidental investor.
 
Management at the Houston-based energy company started meeting with investors after announcing the bid on Wednesday, the sources familiar said. Some of these investors have had questions about the valuation of Occidental’s USD 76 per share cash-and-stock offer, the first source familiar said. But he added that he believes the investors have started to understand the rationale for the deal.
 
Anadarko has said it is reviewing the Occidental bid that seeks to top Anadarko’s agreed USD 33bn merger with oil and gas super major Chevron [NYSE:CVX] announced earlier this month.
 
Occidental said its bid for Anadarko is a 20% premium to Chevron’s USD 65 per share cash and stock offer. CNBC has reported that Occidental had bid more than USD 70 per share for Anadarko prior to the Chevron deal announcement but that company ultimately decided to go with Chevron.
 
The Occidental investor said that his initial reaction to the deal was negative because the deal will put pressure on Occidental’s high-quality balance sheet as it takes on leverage, which could impact its dividend. However, the investor said that he has started to like the proposal as he has digested the terms.
 
Another investor who has stake in all three energy companies said that Occidental is taking on “enormous” amount of debt to fund its bid but added that the company is buying a good asset.
 
The two investors said they believe that Chevron is likely to increase its offer. Anadarko shares ended the day at USD 72.80.
 
While it cannot be ruled out that Chevron could increase its offer, historically the company has been a disciplined buyer even if it has the balance sheet to raise its bid, the sources familiar said.
 
Chevron has a USD 223bn market cap compared to Occidental’s USD 46bn market cap.
 
Anadarko and Occidental declined comment. Chevron said in a statement: "We remain confident that the transaction agreed by Chevron and Anadarko will be completed."
 
by Bhavna Kaul and Hanqing Chen