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By Jennifer Hiller
HOUSTON (Reuters) – Several major shareholders of Occidental Petroleum Corp. voiced their opposition to the $ 38 billion oil company's offer to rival Anadarko Petroleum Corp., which now includes an onerous financing deal with billionaire Warren Buffett.
Occidental and Chevron Corp. Anadarko and its nearly a quarter of a million acres of land compete in the Permian Basin, the main shale deposit in the United States, where low-cost production has allowed the United States to to become the world's largest oil producer with 12.3 million barrels a year. day.
Western stocks were trading Thursday at $ 57.48, down from $ 66.63 a month ago, before rumors that it could challenge Chevron. Last week she had surpassed Chevron's offer. This offer now includes a $ 10 billion financing from Berkshire Hathaway Inc. of Buffett, in exchange for preferred stock against a dividend of 8%.
Major Western shareholders told Reuters they were opposed to the project. They described Anadarko's $ 76-a-share purchase proposal as costly and expressed concerns about the cyclical nature of the oil sector and the cost of obtaining Buffett's financing. .
Several Western shareholders said they felt Chevron's lower $ 65 per share offering was a better choice because it could more easily swallow a company the size of Anadarko.
T. Rowe Price Group Inc., which owns shares in the three oil companies, discussed the merger risk and cost of the Berkshire infusion. John Linehan, portfolio manager at T. Rowe Price, said Buffett's deal could allow Occidental to restructure its cash sales contract to avoid a shareholder vote, although its current offer includes a vote .
T. Rowe Price, the sixth largest shareholder of Occidental, had 21.1 million shares by the end of 2018, according to Refinitiv Eikon figures, as well as 8 million Chevron shares and 865,000 Anadarko shares.
Berkshire would receive a purchase warrant to repurchase up to 80 million common shares at a price of $ 62.50 per private share, in addition to the preferred shares that will earn dividends of 8% per annum.
"It's very expensive paper," said Linehan about the deal with Berkshire. "They could have borrow a lot cheaper than that."
Occidental has not responded to a request for comment on the objections of shareholders to the current proposal. Prior to Buffett's financing plan, it was stated that the deal would result in an improvement of $ 3.5 billion in cash flow and the sale of assets of $ 10 billion to $ 15 billion in order to reduce debt .
Moody's Investors Service estimated that taking over Anadarko's debt and additional borrowings to hedge the bid would add a debt of nearly $ 40 billion to Occidental. Moody's put the debt rating of the company to the test.
South Texas Money Management, which manages $ 2.3 billion in assets, including shares in Chevron and Occidental, hopes Chevron will win.
At the end of March, they owned approximately 580,000 Occidental shares and 370,000 Chevron shares valued at $ 38.5 million and $ 45.5 million, respectively.
"Currently, their offer would allow them to derive a lot of value from this transaction," said Christian Ledoux, South Texas investment manager. The Chevron offer was built at 25% in cash and 75% in stock, compared to the 50-50 division of Occidental.
Even if Chevron increased its offer and offered "a little more money", Mr. Ledoux would still consider the deal to be good for Chevron because the company has expertise in shale, liquefied natural gas and offshore assets. Anadarko.
Chevron has not increased its bid on Anadarko, stating that its agreement would provide "the best value and the greatest certainty to the shareholders of Anadarko".
Western and Chevron, two of the largest producers of Permian oil and gas in terms of production volumes, believe that they can best extract more oil from 240,000 acres (97,120 hectares) of Anadarko. located in the last shale deposit.
The annual Western meeting will be held on May 10. "We will be interested in the interaction between the shareholders and the board of directors," wrote Mitsubishi UFJ Financial Group analysts in a note released on Tuesday.
"On paper, the (Western) deal looks good if oil is $ 65, but we are in a cyclical industry where commodity prices are changing dramatically," said David Katz, president of Matrix Asset Advisors. , which held 241,700 Occidental shares and 61,300 shares. of Chevron at the end of April. "They fundamentally put society at risk."
(Jennifer Hiller report, edited by Gary McWilliams and David Gregorio)
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