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7 More Things To Know About Oxy's Pursuit Of Anadarko

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Two weeks after Occidential Petroleum (Oxy) stunned everyone with its higher public offer on April 24 to grab Anadarko Petroleum away from Chevron , the markets seem convinced that Oxy CEO Vicki Hollub is going to get her deal. After Anadarko's board of directors announced that it now considers Oxy's offer to be the superior bid, Chevron has until Friday to make a counteroffer under the terms of its original deal with Anadarko.

But, as Barron's reported on Tuesday, Wall Street seems to be doubting that will happen. "The market nearly fully reflects the Occidental transaction and does not appear to be anticipating a Chevron counter offer," Stifel analyst Michael Scialla wrote, noting that Anadarko stock is now trading near the Oxy offer price.

That's the first thing you need to know about the state of play on this looming major transaction as of this writing on May 8, but it's far from all. Here are six more things you should know as we await a decision by Chevron:

Oxy's additional moves since April 24 may have clinched the deal. - as DrillingInfo's M&A Analyst Andrew Dittmar told me in an email, “Besides giving Anadarko’s board of directors more security on the amount the company will receive and less volatility from changes in Oxy’s stock price, the higher cash offer avoids putting the merger to a vote by Occidental’s own shareholders.”

There had been some concern that Occidental’s shareholders might oppose the deal, which grew with reports that activist Carl Icahn had taken a stake in Oxy. “Occidental’s deal with Warren Buffett for Berkshire Hathaway to provide $10 billion in financing via preferred stock gave the Occidental bid additional credibility,” added Dittmar. “However, some of their own shareholders were concerned at the 8% dividend financing cost, which is significantly higher than what Occidental pays on its common stock. On the other hand, Buffett’s cash combined with confidence from the Total sales agreement is allowing Oxy to raise the cash portion of its bid, avoiding a shareholder vote entirely.”

The market believes that Chevron would now have to match or beat Oxy's offer. - Dittmar agrees: "Chevron’s ability to win out by incrementally raising their offer looks gone. Likely Chevron would need to match or beat Oxy’s $76/share offer to carry the day at this point,” Dittmar said. “Whether they will choose to do so or turn to some of the other attractive acquisition targets out there remains to be seen.”

But Chevron will be careful not to overpay. - On April 26, Chevron CEO Michael Wirth assured investors that his company has a limit on how much it is willing to pay for this acquisition, telling CNBC that "we’ve said we will do things that are value-creating for our shareholders. And we don’t need to do anything. We’ve got a very strong story without doing a transaction.”

Scialla thinks Chevron will walk away with its $1 billion separation fee from Anadarko and pursue a different acquisition. - “While CVX had overlap with APC’s Permian assets and could easily manage the Mozambique project, the company is unlikely to stretch for this transaction, in our view, as long as cheaper alternatives ... are available,” Scialla said.

Oxy's application of advanced technologies enhances its ability to develop Anadarko's assets. - Ron Beck, Marketing Strategy Manager for technology firm AspenTech, told me that Oxy is well positioned to benefit from synergies with Anadarko’s assets and resources. "But upstream is always about timing," he said, "Technology can be expected to be a key enabler here. In the Permian Basin, Occidental has shown itself to be a leader in both developing the most productive wells and in maximizing production through CO2 injection. Technology becomes a key enabler, allowing a fast assessment of where and when to deploy capital to take best advantage of synergies and get the most out of newly available assets. Analytics and technical risk models can greatly accelerate the integration process."

Oxy's agreement-in-principle with Total is also a strong fit for the French giant. - Greig Aitken, director, M&A research for Wood Mackenzie , said this about the side deal between Oxy and Total:“Total would gain material oil, LNG and exploration holdings. In oil, Total will consolidate its position in Algeria’s Hassi Berkine oil field and add a new deepwater oil position in Ghana.

“Total will also grow its gas business, a core long-term objective for the company. Anadarko’s Area 1 LNG project in Mozambique did not sit naturally in Oxy’s portfolio. But it provides Total with a new greenfield LNG development for which sanction is imminent. The project has the potential for multiple brownfield expansions. The deal also includes exploration acreage in South Africa close to Total’s recent Brulpadda gas discovery.”

This competition for Anadarko's plum assets has produced a fascinating game of chess between two of the U.S. oil industry's biggest players. We won't know until Friday whether Oxy's aggressive strategy will end in a checkmate, or if Chevron has one more counter-move to offer.

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