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Occidental is offering Anadarko shareholders $76 per share in cash and stock, in a deal valued at $57 billion first reported by CNBC. Earlier this month, Anadarko agreed to sell its business to Chevron for $65 per share, also in cash and stock, for an enterprise value of $50 billion.
A Chevron spokesperson told CNBC the company is "confident the transaction agreed to by Chevron and Anadarko will be completed."
Chevron's stock price fell 3.1% on Wednesday, while Occidental's shares were down about half a percent. Shares of Anadarko surged 11.6%, posting the best daily performance in the S&P 500 stock index.
"This sets up a virtually unprecedented scenario in the E&P industry: a genuine, outright bidding war," said Raymond James analyst Pavel Molchanov. He noted that none of the last three oil and gas megamergers over the last 15 years have sparked hostile bids.
"To put the point even more strongly, Occidental is going head-to-head against a supermajor four times its size," he said.
Several other analysts immediately questioned the wisdom of Occidental entering a bidding war with Chevron, and most see the latter emerging as the winner. But that does not mean Chevron won't have to pay up to claim its prize.
Molchanov sees Chevron ultimately taking control of Anadarko, but he said that outcome "suggests that Chevron will try to match or even top Occidental's bid." However, he cautioned that the situation is very fluid, and any prediction is essentially a guess at this point.
Paul Sankey, equity analyst at Mizuho Securities, believes Chevron could up its offer by $5 per share, but not much more. Right now, the odds are just as great that Chevron will stick with its original bid on the view that Anadarko shareholders favor its offer, he said.
"We could see a bump, but equally they might just tough this out," Sankey said in a research note Wednesday. "Oxy's bid is by no means a knock out in terms of premium [and] credibility, not certainty given the requirement for a shareholder vote."
Major Occidental shareholders are currently indicating they will not back the bid, according to Sankey.
The winning bid will likely have to fall in the ballpark of Anadarko's net asset value at roughly $76 per share, said Michael Bradley, managing director for equity sales at investment bank Tudor Pickering Holt.
He believes the minimum that Chevron will need to offer is $72-$73 per share. Around that level, it would be difficult for Occidental to compete because Anadarko shareholders prefer Chevron shares to Occidental's stock, Bradley said.
In his view, Chevron is likely to sweeten its offer with cash rather than additional shares.
"Our best guess is that [Chevron] 'WILL' come back with a competing bid because there is an immense amount of deal logic to this combination and also because [Anadarko] assets are irreplaceable, so if you really want them then you WILL pay up," Bradley said in a research note.
Analysts say Anadarko's global assets better align with Chevron's portfolio, but the biggest prize for either bidder is widely believed to be Anadarko's acreage in the Permian Basin, the top U.S. shale field.
On Wednesday, Occidental CEO Vicki Hollub told CNBC's David Faber that she has not found an opportunity with more upside over the last two years.
Anadarko confirmed Wednesday that it had received Occidental's unsolicited bid. The company said its board will carefully review the proposal to determine the best course of action for shareholders.
"The Anadarko board has not made any determination as to whether Occidental's proposal constitutes, or could reasonably be expected to result in, a superior proposal under the terms of the Chevron Merger Agreement," the company said in a statement.