Occidental Petroleum trumps Chevron offer for Anadarko

Occidental Petroleum has offered to buy Anadarko for $76 a share, trumping a $65 a share offer from Chevron earlier this month.

Under the terms of the offer, Anadarko shareholders would receive $38 in cash and 0.6094 Occidental shares for each of their shares. It values Anadarko at $57bn including debt.

Occidental said its offer was superior both financially and strategically, "creating a global energy leader with the scale and geographic diversification to drive growth and deliver compelling value and returns to the shareholders of both companies".

Vicki Hollub, president and chief executive officer of Occidental, said: "Occidental is a leader in using technological innovation to create value, and we will deploy our expertise to enhance the performance and productivity of Anadarko's assets not only in the Permian, but globally. Occidental and Anadarko have a highly complementary asset portfolio, providing us with a unique opportunity to realize significant operating, cost, and capital allocation synergies and achieve near-term cash flow accretion.

"We have been focused on Anadarko for several years because we have long believed that we are ideally positioned to generate compelling value from a combination with them. We look forward to engaging immediately with Anadarko's board and stakeholders to deliver this superior transaction."

Occidental said the deal would be accretive from year one and would generate $3.5bn in annual free cash flow improvements that are expected to be fully achieved by 2021. This comprises $2bn in annual pre-tax run-rate cost synergies and $1.5bn of capital reduction, with the potential for further upside.

On 12 April, Anadarko agreed to be bought by Chevron in a $33bn cash and stock deal.

At 1255 BST, Anadarko shares were up 11.4% in pre-market trade at $71.35.

RBC Capital Markets 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, 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 more than $2bn over time."