By Arathy S Nair and David French
(Reuters) - Anadarko Petroleum Corp (NYSE:APC) said on Monday it would negotiate with Occidental Petroleum Corp (NYSE:OXY) over its $38 billion cash-and-stock bid, after determining it could get a better deal than its agreed $33 billion sale to Chevron Corp. (NYSE:CVX)
The development represents a breakthrough in Occidental Chief Executive Vicki Hollub's two-year effort to buy Anadarko, one of the top U.S. oil and gas producers in the lucrative Permian Basin in Texas and New Mexico. Anadarko announced a deal with Chevron on April 12 after snubbing a higher bid from Occidental, prompting Occidental to try to upend the Chevron deal.
"We hope Anadarko will proceed quickly to secure this superior transaction for its shareholders," an Occidental spokeswoman said.
Anadarko said its board had unanimously decided that Occidental's offer could result in a "superior proposal" but added that its deal with Chevron remained in effect until it decided to cut a new deal with Occidental.
Anadarko asked Chevron on Sunday if it wanted to raise its bid and Chevron declined, people familiar with the matter told Reuters on Monday.
Chevron is reluctant to pay more for Anadarko and does not want to be drawn into a bidding war, the sources said. Chevron also wants to see if Occidental will manage to ink a deal for Anadarko, and whether Occidental shareholders will support it, one of the sources said.
"We believe our signed agreement with Anadarko provides the best value and the most certainty to Anadarko's shareholders," Chevron said in a statement on Monday.
Chevron and Occidental are vying for one of the biggest prizes in the oil industry: Anadarko's nearly quarter-million-acre holdings in the core of the Permian Basin, the top U.S. shale field.
The two companies each control land adjacent to Anadarko's properties and expect a deal will add deposits that can produce supplies for decades using low-cost drilling techniques.
Occidental unveiled its bid for Anadarko last Wednesday, offering to pay for it half in cash and half with its own shares. Chevron's deal with Anadarko was structured as 25 percent cash and 75 percent stock. Occidental's stock was down 2.38 percent to $59.85.
Anadarko shares were up 0.4 percent to $73.05, slightly below the value of Occidental's offer.
OCCIDENTAL SHAREHOLDERS GET A SAY
Under the terms of the merger agreement, Chevron has four days after being notified by Anadarko's board to respond with a counter-offer. If Anadarko proceeds with a sale to Occidental, it will have to pay Chevron a $1 billion deal breakup fee.
The acquisition of Anadarko would add nearly a quarter million acres to Occidental's holdings in the Permian shale basin, and double its global oil and gas production to 1.4 million barrels of oil equivalent per day.
A key hurdle that Occidental has to overcome in its negotiations with Anadarko is that its proposed deal is contingent on Occidental shareholders voting to approve it.
These could make a deal more vulnerable to shareholder agitation. For example, activist hedge fund Starboard Value LP tried to shoot down Bristol-Myers Co's $74 billion deal to acquire biotech Celgene Corp (NASDAQ:CELG) earlier this year by trying to convince Bristol-Myers shareholders to vote it down. It was ultimately unsuccessful.
A deal with Chevron offers more certainty to Anadarko in that regard, because Chevron shareholders will not be given a vote. Anadarko shareholders will be given a vote on the sale of the company, be it with Occidental or Chevron.
Chevron and Occidental also have put forward different estimates on the value of the operational synergies they can derive from Anadarko. Chevron projects the synergies to be worth $1 billion a year, while Occidental says it can extract $2 billion annually in synergies.