Anadarko enters merger talks with Occidental, jeopardizing Chevron deal

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The bidding war for Anadarko reflects the keen desire of oil companies large and small to acquire the best shale assets in the US. More specifically, oil companies are racing to drill oil in the Permian Basin, the West Texas oil shale deposit that has made the United States the world's largest producer.

Anadarko and Occidental were in merger talks even before Chevron reached a takeover agreement for Anadarko.

Anadarko has announced the resumption of negotiations with Occidental, which is already the largest oil producer in the Permian Basin. The acquisition of Anadarko's Permian assets would bring Western production into this shale oil deposit at 533,000 barrels per day.

Even though neither Anadarko nor Occidental are well-known names, a merger would create an oil giant. The combined company would represent about $ 100 billion and would produce about 1.4 million barrels of oil a day.

After reviewing the offer made by Occidental to lawyers and bankers, the Anadarko board of directors stated that he had unanimously determined that it was reasonable to expect that it will result in a "superior proposal".

In a statement, Anadarko's board of directors said Occidental's candidacy reflected a "significant improvement" in terms of value, terms and conditions and closing certainty compared to the previous proposals. # 39; West.

Last week, Occidental proposed to buy each share of Anadarko against $ 38 in cash and 0.6094 of a Western share.

The Chevron agreement is more biased towards stock. Chevron offered to pay $ 16.25 in cash and 0.3869 of one share for each Anadarko share.

In a statement, Chevron expressed confidence that its agreement will prevail.

"We believe that our agreement with Anadarko provides the best value and the greatest certainty to the shareholders of Anadarko," Chevron said on Monday.

Anadarko warned that there "could be no assurance" that negotiations with Occidental would result in a better deal than the one already concluded with Chevron.

Despite new negotiations with Occidental, Anadarko said the merger agreement with Chevron remained in effect. The Anadarko Board of Directors reaffirmed its recommendation in favor of the agreement with Chevron "at the moment".

Wall Street analysts are worried that the Western deal could weigh on the company's balance sheet. Recognizing this challenge, Occidental CEO Vicki Hollub told analysts last week that the company would "deleverage quickly" by selling between $ 10 billion and $ 15 billion in assets over two years.

As the second largest oil company in the United States, Chevron certainly has the firepower it needs to strengthen its offering. But Chevron must also guard against the overpayments of Anadarko and its energy portfolio.

Beyond its position in the Permian Basin, Anadarko is attractive because of its shale assets in Colorado, its deepwater drilling properties in the Gulf of Mexico and its liquefied natural gas project in Mozambique.

Last week, Chevron executives suggested that Anadarko integrate more into their business. Chevron highlighted its track record of successful acquisitions and its role as a leading LNG producer.

If Anadarko joins Occidental, Chevron will not be left empty handed. Under the terms of their merger agreement, Anadarko would have had to pay Chevron a break-up fee of $ 1 billion if it reaches a takeover agreement with another company.

Western shares fell by around 2% on Monday, while Chevron and Anadarko have changed little.

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