Chevron Corp. said Thursday that it will walk away from its deal to buy Anadarko Petroleum, pocketing the $1 billion breakup fee instead. The move allows Occidental Petroleum, backed by billionaire Warren Buffett, to acquire shale-rich Anadarko and avoid what could have been a costly bidding war.
Chevron, one of the largest oil companies in the world and known for its financial discipline, had until today to decide whether to increase the $33 billion cash-and-stock bid Anadarko accepted on April 12. Occidental threw a wrench into the process two weeks later when it returned with a $38 billion offer.
"Winning in any environment doesn't mean winning at any cost," Chevron Chief Executive Officer Michael Wirth said in a statement released Thursday morning. "Cost and capital discipline always matter, and we will not dilute our returns or erode value for our shareholders for the sake of doing a deal."
Occidental released a statement Thursday: "We look forward to signing a merger agreement with Anadarko and realizing value for our stakeholders as soon as possible."
Under the deal announced April 12, Chevron would have paid the equivalent of $65 per share -- including 25% in cash -- for Anadarko, which is prized for its assets in the oil-abundant Permian Basin. But Occidental countered with $76 a share, half in cash and half in stock.
Buffett's Berkshire Hathaway then stepped in with $10 billion in financing, prompting Occidental on Sunday to raise the cash portion of its offer to 78%, or $59 a share.
On Monday, Anadarko declared Occidental's bid "a superior proposal," and its board informed Chevron of its intent to terminate the $33 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 $1 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 $1 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 deep-water 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 [petroleum] major."
Although the proposed acquisition doesn't need formal approval from investors, Occidental shareholders are expected to turn today's annual general meeting into a proxy referendum on the deal. At least one major investor -- T. Rowe Price Group Inc. -- plans to vote to oust CEO Vicki Hollub and the eight other directors seeking re-election.
The financing comes with a hefty price tag, with Buffett to receive 100,000 preferred shares that will accrue dividends of 8% annually. That's a substantial premium to the average 3.8% coupon on about $10.4 billion of outstanding debt, according to data compiled by Bloomberg.
Hollub also agreed to sell Anadarko's assets in four African nations to Total SA for $8.8 billion, contingent on Occidental acquiring the company.
T. Rowe Price said Thursday that it intends to vote against the board at the meeting because Hollub and her team restructured their Anadarko bid to remove the need for a separate vote on the deal. T. Rowe Price is Occidental's seventh-biggest investor, according to data compiled by Bloomberg.
"Given the fact that the Occidental management team has refused to put this to a shareholder vote, we feel like we're left with no choice," said John Linehan, a T. Rowe portfolio manager.
Chevron shares closed up 3.1% in trading Thursday. Occidental dropped 6.4% and Anadarko slid 3.3%.
Chevron said it would use the $1 billion windfall to increase its stock buybacks by 25% to $5 billion.
Information for this article was contributed by Thomas Heath of The Washington Post and by and by Kevin Crowley, Scott Deveau and Caleb Mutua of Bloomberg News.
Business on 05/10/2019