Anadarko Petroleum Corp (NYSE:APC) shares jumped higher in early New York trade on Wednesday on the prospect of the first hostile battle for an oil major in years after Occidental Petroleum Corp (NYSE:OXY) lodged a $57bn takeover bid, trumping Chevron Corp’s (NYSE:CVX) $50bn deal.
The surprise $76-per-share offer propelled Andarko shares nearly 12% higher to $71.58, well above the $65 per share offered by Chevron. Occidental shares shed 2.5% at $60.82, while Chevron lost 1.2% at $120.65.
Occidental’s offer comprises $38 in cash and 0.6094 of its shares and represents a 19% premium to Anadarko’s closing price on Tuesday.
Chevron reacted by saying it would boost the cash portion of its offer for Andarko to 50%, up from the 25% cash and 75% stock it offered previously.
Under Chevron’s $65 per share bid, Anadarko shareholders are set to receive 0.3869 Chevron shares and $16.25 in cash for each Anadarko share.
If Andarko agrees to its deal, Occidental would become the largest producer in the lucrative US Permian basin, with total production of 533,000 barrels of oil equivalent production per day, the company said.
In recent weeks, Occidental added, it had been trying to woo Anadarko, pointing out that it had made two proposals of “significantly higher value” to that made by Chevron on April 8 in a letter to Andarko’s board.
However, Anadarko would be liable to pay Chevron a $1bn break fee if its board chooses to go with Occidental’s offer.
Chevon could afford to pay more
In a note to clients on the bid twist, analysts at RBC Capital said: “Given the fragmented nature of the industry, competing bids are not typical, however both companies are clearly pointing to material synergies.
“We think the strategic rationale between Chevron and Anadarko makes sense, while we also think Chevron is likely the more natural owner for a greenfield LNG development versus Occidental.
“Based on the relative valuations between Super-Majors and US E&Ps we think it makes sense for company’s like Chevron to use equity to fund deals such as this.”
“However,” they added, “the competing bid situation does raise the question as to whether Chevron may have to raise its current offer.”
“Based on our calculations, we think Chevron could afford to pay an additional $9 per share in cash for each Anadarko share (in addition to the $16.25bn already announced), and still afford its capex commitments, current dividend and ongoing buyback programme on an organic basis.
“While this is not the optimal outcome for Chevron given the opportunistic bid, we think it could likely be defended given that in our view potential synergies are likely to be >$2bn over time,” the RBC analysts concluded.
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