Anadarko to cancel Chevron buyout deal after board deems Occidental's bid superior

Key Points
  • Anadarko Petroleum's board of directors unanimously decides Occidental's takeover bid is superior to Chevron's offer.
  • Anadarko intends to cancel its merger agreement with Chevron and sell its business to Occidental.
  • Chevron now has four days to put another offer on the table.
Anadarko likely to deem Occidental's buyout offer superior to Chevron's, sources tell CNBC

Anadarko Petroleum's board of directors said on Monday that Occidental Petroleum's buyout offer is superior to its agreement to sell its business to Chevron, putting the deal with the oil giant in jeopardy.

The reversal marks the latest twist in a rare bidding war in the oil and gas sector. Chevron now has four days to counter Occidental's latest bid for Anadarko, an oil and gas driller with prized assets in the U.S. Permian Basin, the Gulf of Mexico and Africa.

Shares of Occidental Petroleum were down slightly in after hours trading, while Chevron's stock price ticked higher. Anadarko's shares were roughly flat after jumping 3.8% on Monday.

Chevron reached an agreement last month to buy Anadarko for $33 billion, or $65 a share. Shortly after, Occidental offered $38 billion, or $76 a share. Occidental on Sunday sweetened its bid by offering to pay mostly cash for Anadarko, after earlier structuring the transaction as a 50-50 cash-and-stock deal.

Analysts debate whether Chevron or Occidental will win Anadarko bidding war

Anadarko's board of directors on Monday unanimously decided that the revised offer is a "Superior Proposal" under the terms of its agreement with Chevron. The board intends to cancel the deal with Chevron and enter into a definitive agreement to sell its business to Occidental.

"We have long been convinced that a strategic combination with Anadarko represents a compelling opportunity for the shareholders of both Occidental and Anadarko, and we are pleased that Anadarko's Board has determined that our May 5, 2019 offer is a 'Superior Proposal,'" Occidental said in a statement.

According to that agreement, Chevron has the right to put another offer on the table through Friday. Chevron's merger agreement with Anadarko is structured as 75% stock and 25% cash.

If Chevron does not make a counter offer, or if its revised proposal is rejected, Anadarko must pay Chevron a $1 billion breakup fee.

Many analysts previously said Chevron likely didn't have to match Occidental's higher bid — or at least come close — because it is the favorite to take over Anadarko. Chevron's global operations better dovetail with Anadarko's portfolio, and with a far larger balance sheet than Occidental boasts, the oil major can more easily digest an acquisition of this size.

However, some analysts believe Chevron will now have to match Occidental's bid after the company secured financing for the transaction and removed obstacles to closing the deal.

Warren Buffett: The Occidental bid is a bet on oil in the long term

Last week, Occidental secured a $10 billion preferred stock investment from Warren Buffett's Berkshire Hathaway. On Sunday, Occidental announced it had struck a deal to sell Anadarko's assets in Africa to French oil major Total for $8.8 billion.

Both arrangements are contingent on Occidental completing its acquisition of Anadarko and would fund the cash component of the deal.

By offering 78% cash and 22% stock in its revised offer rather than the original 50-50 split, Occidental no longer has to put the acquisition to a vote before shareholders, making it more likely the company can close the deal.

Most investors expect Chevron to make one counter offer in the low- to mid-$70s that matches Occidental's cash-to-stock ratio, Morgan Stanley said on Monday. The investment bank says Occidental would have little flexibility to further revise its offer due to balance sheet concerns, particularly around taking on more debt.

Here's the board's full statement:

Anadarko Petroleum Corporation (NYSE: APC) today announced that its board of directors, in consultation with its financial and legal advisors, has unanimously determined that the revised acquisition proposal it received from Occidental Petroleum Corporation on May 5, 2019 (the "Revised Occidental Proposal") constitutes a "Superior Proposal" as defined in Anadarko's previously announced merger agreement with Chevron Corporation (the "Chevron Merger Agreement").

Under the terms of the Revised Occidental Proposal, Occidental would acquire Anadarko for consideration consisting of $59.00 in cash and 0.2934 of a share of Occidental common stock per share of Anadarko common stock. Occidental has obtained committed financing for the entire cash portion of the aggregate transaction consideration, and completion of the transaction will not require or be conditioned upon the receipt of any vote or other approval by Occidental's stockholders.

Anadarko has notified Chevron that (i) Anadarko's board of directors has unanimously determined that the Revised Occidental Proposal constitutes a "Superior Proposal" and (ii) after complying with its obligations to Chevron under the Chevron Merger Agreement, Anadarko intends to terminate the Chevron Merger Agreement in order to enter into a definitive merger agreement with Occidental in connection with the Revised Occidental Proposal.

Pursuant to the Chevron Merger Agreement, Chevron has the right, during the four business day period ending on May 10, 2019, which may be extended in accordance with the terms of the Chevron Merger Agreement, to propose revisions to the terms of the Chevron Merger Agreement, or to make another proposal. Anadarko is required to, and will, make its representatives reasonably available to negotiate with Chevron during this period with respect to such proposed revisions or other proposal, if any.

If Anadarko terminates the Chevron Merger Agreement in order to enter into a definitive agreement with respect to the Revised Occidental Proposal, Anadarko will pay Chevron a $1 billion termination fee as required by the Chevron Merger Agreement. The Chevron Merger Agreement remains in effect unless and until terminated, and accordingly, Anadarko's Board of Directors reaffirms its existing recommendation of the transaction with Chevron at this time.

Correction: An earlier version of this story misstated in one reference which company Anadarko was selling its business to.