Anadarko to resume $38bn takeover talks with Occidental

Board of directors decide Occidental bid "could reasonably be expected to result in a superior proposal", despite agreed Chevron deal

Tussle over energy deal has oil industry enthralled. Bloomberg

Anadarko Petroleum plans to resume talks about a potential $38 billion takeover by Occidental Petroleum, a move that threatens to scupper a previously agreed deal with Chevron.
In a unanimous decision, Anadarko's board of directors determined the Occidental bid "could reasonably be expected to result in a superior proposal", the company said on Monday. It added that an earlier agreement to merge with Chevron remains in effect.
The move sets the stage for Chevron to come back with a sweetened offer. Under the terms of the companies' April 12 merger agreement, if Anadarko formally declares the Occidental offer to be superior, Chevron then has four days to make another proposal.

While it has ample financial firepower to top Occidental's offer, it may opt instead to avoid an expensive bidding war, Bloomberg said. Taking the $1 billion break fee that's part of their accord and walking away would be an acceptable outcome for Chevron, said Jefferies analysts Jason Gammel and Daniela Almeida.
"Chevron CEO Mike Wirth's mantra is 'costs matter,'" the analysts wrote in a note just before the Anadarko statement. "Chevron's primary rationale for the acquisition is return enhancement, which erodes as the cost increases."

Some analysts were sceptical of the Occidental route.

"This is not a smart move on part of Occidental given the difference of size between the two companies," Raymond James analyst Muhammed Ghulam said last week.

"Chevron is much bigger and has the resources to combine the two companies and has significant deep water experience," Mr Ghulam said, referring to Anadarko's significant deep water Gulf of Mexico assets.

Anadarko shares slipped less than 1 per cent in early trading in New York, while Occidental dropped as much as 2.5 per cent and Chevron was little changed.
The tussle for Anadarko has transfixed the oil industry over the past two weeks. A takeout of the company would be the largest deal in the sector in at least four years. Chevron and Occidental are targeting the company to expand their presence in the Permian Basin, the world's largest oil patch.
Occidental went public April 24 with a bid to buy Anadarko for $76 per share in cash and stock. That compares with Chevron's agreement to buy Texas-based Anadarko for $65 a share.
That valuation gap has created pressure from investors. New York-based investment firm DE Shaw urged the company to run an open sale process, sources said last week.
Although Occidental's offer is higher, the company's smaller size and balance sheet compared with Chevron have raiseduncertainty over its ability to complete a deal. Unlike Chevron, Occidental would also have to put the deal to a shareholder vote.
"We believe the market has already priced in a higher bidfrom Chevron," Mr Gammel and Mr Almeida said.

“We don’texpect that a sweetened Chevron bid would need to meet Oxy’s given the Anadarko board’s evident preference for Chevron stock.”