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May 7, 2019 1:30 PM, EDT

Anadarko Accepts Occidental Petroleum Bid; Chevron to Make Counteroffer?

Oil Rig Craig Hartley/Bloomberg News

Anadarko Petroleum Corp.’s board has declared Occidental Petroleum Corp.’s sweetened $38 billion takeover “superior,” giving Chevron Corp. until May 10 to either boost its offer or walk away from the oil industry’s biggest deal in at least four years.

The announcement by Anadarko, which had rebuffed several prior bids from Occidental, comes almost a month after it agreed to be purchased by Chevron for $33 billion. Chevron so far has refused to increase its offer, saying its proposal is a better long-term option for Anadarko shareholders. If it decides not to raise the bid, Chevron can walk away with a $1 billion breakup fee.

The takeover of Anadarko has been a rare public fight for an oil industry that hasn’t seen many bidding wars. Occidental CEO Vicki Hollub’s recruitment of billionaire Warren Buffett and an $8.8 billion accord to offload African oil and gas fields to Total SA appeared to have been key milestones in winning the board’s favor.

Warren Buffet

Billionaire Warren Buffett (Houston Cofield/Bloomberg News)

Anadarko directors previously had chosen Chevron’s offer even though it was substantially cheaper than that of Occidental, which, as a smaller company, would have to take on much more leverage to do the deal.

“We think Chevron is likely to make a counteroffer, but it may not be high enough to win the bid,” said Leo Mariani, an analyst at KeyBanc Capital Markets. Chevron, boosted by more valuable stock, will have to offer around $70 a share to be considered by Anadarko, costing it an extra $3.2 billion, he said.

The period for Chevron’s response may be extended under the terms of the original agreement, Anadarko said in a statement after the market closed May 6. In a separate statement, Chevron acknowledged Anadarko’s response and declined to comment further.

Chevron CEO Mike Wirth has signaled he is willing to end his pursuit of a deal if the price gets so high that it imperils investor returns.

“We strongly believe that the combination of our two companies creates superior long-term value for shareholders of the combined company,” Wirth said on an April 26 earnings conference call.

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While buying Anadarko would expand the producer’s presence in the Permian Basin, which now is the world’s largest oil patch, Chevron could acquire other operators that are in the region. It also has existing ambitious growth plans for the Permian.

Occidental over the weekend pressed to alleviate any remaining concerns from Anadarko. The Houston-based company said May 5 that 78% of the deal will be paid in cash, up from 50%, and it got rid of the need for a shareholder vote, which had been cited as a sticking point for Anadarko’s directors.

“We have long been convinced that a strategic combination with Anadarko represents a compelling opportunity for the shareholders of both Occidental and Anadarko,” Occidental said in a statement after Anadarko accepted the suitor’s offer.

At least one major Occidental investor has signaled that it is ready to break with the company’s board of directors. T. Rowe Price Group Inc. told Reuters it intends to vote against the board after the company eliminated the need for shareholder approval in its revised bid.

“With the OXY deal looking safer for APC to accept, I’d say this may force CVX to match the OXY bid or lose out on these terrific assets,” said Bill Nygren, chief investment officer of Harris Associates, which manages $120 billion and owns about 3% of Anadarko.