Chevron may have to sweeten offer for Anadarko after rival Occidental bid
Energy giant Chevron may have to sweeten its $33 billion offer for Anadarko Petroleum after fellow driller Occidental Petroleum put a higher bid on the table, analysts say.
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.
“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 says 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 says.
“We could see a bump, but equally they might just tough this out,” Sankey said in a research note on 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, says 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.