While there is much speculation on whether Chevron or Occidental will win the bid to take over Anadarko Petroleum, you can’t just necessarily go by the size of the bids.
Takeover bids with companies aren’t always decided by the size of a company’s offer, and it just may not be in the case of Chevron and Occidental battling it out to acquire independent petroleum company Anadarco.
Occidental recently joined this battle and did not mess around with their bid, offering $76 a share for Anadarko stock in an equal amount of cash and Occidental stock, to stand proudly beside the current value of Chevron’s offering of just $62 a share.
Chevron’s bid on April 12 was actually worth $65 per share at the time. Chevron’s bid was mostly in stock though, and its stock has moved down considerably since then. This is one of the problems with a company looking to make an acquisition that is funded by their stock price, as the mere announcement of the offer will tend to cause the stock being valued to drop, decreasing the value of the deal in accordance.
Chevron’s stock is trading even lower after the Occidental bid came out, which in itself suggests that the market may not have altered their view of the possibility of Chevron winning this. There are various forces that cause a stock to do down, but if this new bid did kill the possibility for Chevron coming out on top here, we would probably have seen this make it onto their chart in a noticeable way, as their first bid did.
Occidental’s stock, on the other hand, hasn’t really seen the downward effect upon its price that we would expect if their bid was being taken very seriously by the market. Occidental has seen their stock go down in value since, but not of the magnitude that we would normally see with an event as big as this.
It’s All Up to Chevron Now
The ball is in Chevron’s court now, and while no one really expects that their current bid to be favored by Anadarko’s shareholders, the expectation is that Chevron will put in a second bid, one that is at least closer to their rival’s. The thinking is that Chevron may respond with something short of Occidental’s bid, but with an amount that may have Anadarko shareholders seeing them as preferable enough overall to make up the difference.
Chevron is seen as a better fit by at least some, and this view could and probably will shape Chevron’s response. There is also the matter of a Chevron deal being simpler to get approved and implement, as theirs does not require the approval of their own shareholders, only Anadarko’s.
Occidental’s offer requires approval from both Anadarko’s shareholders and their own, complicating and delaying the matter as well as making any agreement less certain to be ratified. Anadarko may also see Chevron as a company being preferable, which is expected to sway their sentiment at least to some degree.
How much money matters here is yet to be decided, but if Chevron does not come close enough, their other advantages will not be enough to decide this.
Analyst Sees Chevron Responding, As Does the Market
Mizuho energy analyst Paul Sankey still thinks Chevron is well in the running even if they only do end up raising their bid to $72, which would be $4 short of the Occidental offer. $4 a share is a lot of money, but even with stock acquisition and merger deals, money isn’t everything.
Sankey writes that “we think Chevron will raise in response to the bid, but to a last and final bid, short of Oxy at $76, perhaps at $72. This can be recommended to the Anadarko board, in our view, given uncertainty around the Oxy shareholder vote and the better industrial logic for Chevron.”
Anadarko has come out to say that it is considering the Occidental offer, although they are likely awaiting Chevron’s next move, and it is unlikely that Chevron’s offer as it stands would measure up well enough given the current disparity with the offer that they have on the table now.
Sankey thinks this is needed, as he feels that there is just too much difference between the bids now. Chevron does have an earnings call coming up before the market opens on Friday, where the issue will very likely be addressed. We are expected to be given an indication on where Chevron currently stands on this issue, and what kind of response we may expect from them, if any.
Meanwhile, Chevron remains confident that they will get this deal done and acquire Anadarko. This almost certainly means that they will up the ante. Chevron is the bigger of the two petroleum companies by a large margin, with five times more market capitalization, so they do have more means than Occidental. However, this really comes down to who wants it more, and Occidental has shown us that they not only can get into the conversation about this, they can do so with a very competitive offer.
The main message that Occidental has sent Chevron with Occidental’s much higher bid is how serious they are about winning this fight, otherwise we would have probably seen a bid a lot closer. Occidental seems to understand that doing so will involve offering significantly more per share, and if anything, they have built in a good margin of safety into it, to ensure it really does stand out enough.
It may be too much to expect Chevron to just roll over and give up here, although we really won’t know for sure until we hear more specific comments from Chevron than they plan on winning this, as they also need to show us a number that may be expected to do so.
Occidental may therefore appear to be in the driver’s seat, but if we look beyond the current bids and see what the market believes, they still have a lot of faith in Chevron’s chances. While the market is often wrong, when we’re looking to decide these things for ourselves, we do need to take the market’s opinion into account, and they remain firmly on the side of Chevron right now.