Anadarko pressed Occidental for cash, expecting investor opposition -filing

HOUSTON (Reuters) - Anadarko Petroleum exacted a top price for itself by repeatedly spurning Occidental Petroleum’s approaches and pushing for all-cash offers, reasoning the market might react negatively to the blockbuster $38 billion deal, according to securities filings released on Friday.

FILE PHOTO: Anadarko Petroleum Corporation is seen in The Woodlands, Texas, U.S., April 30, 2019. REUTERS/Loren Elliott/File Photo

Occidental last month beat out Chevron Corp to grab a major oil industry prize: nearly a quarter million acres in the Permian Basin, the top U.S. shale field, where low-cost output has helped turn the United States into the world’s top oil producer at more than 12 million barrels per day.

Anadarko’s tactics sweetened the sales terms and guaranteed a huge payday for its executives, Chevron and deal advisers, the filing showed. Anadarko Chief Executive Al Walker will receive $98 million and President Robert Gwin $55 million, their share of $300 million in payouts to Anadarko’s top six executives.

Investment bankers Evercore Group and Goldman Sachs & Co, which represented Anadarko, each earned a $53 million fee, the filing showed. Chevron received a $1 billion breakup fee.

Anadarko’s board used the suitors’ competing offers to press for better terms, according to detailed accounts presented for the first time in the filing.

The board pushed Occidental to revise an initial, all-stock offer that was not tax-free, needed a shareholder vote and required a change to its charter. Those efforts prodded Occidental to obtain financing from billionaire Warren Buffett’s Berkshire Hathaway Inc that eliminated a shareholder vote.

In addition, the Anadarko board urged Chevron to increase its initial offer, winning a $1 a share increase to $65 a share, and got Chevron to agree to eliminate a provision requiring its own offer to be presented to Anadarko shareholders if another deal appeared.

Occidental CEO Vicki Hollub began pursuing Anadarko in July 2017, and that fall presented a stock-swap that valued its rival at $61.22 a share. Walker rejected the offer and she followed up with a deal valuing Anadarko at $76 a share, the filing showed.

The two continued talks through 2018 with the frequency growing after Chevron CEO Michael Wirth approached Anadarko in February offering to buy it for $64 a share in a deal that was 25 percent cash and 75 percent stock.

Anadarko’s board initially favored Chevron after concluding Occidental’s shares would fall once its offer was publicly announced, and the drop would lower the value of the deal to Anadarko’s shareholders. It pressed Hollub to put a collar on the stock portion. The board also calculated that Occidental would have to sell assets to pay down debt, adding to the risks it would face.

Anadarko’s board believed that if it accepted Occidental’s bid first, Chevron would walk away, but if it accepted the Chevron deal, “there was a substantial likelihood that Occidental would continue its pursuit” and “Anadarko’s stockholders would benefit significantly.”

Occidental, Anadarko and Chevron did not respond to requests for further comment.

Occidental’s shares have fallen nearly 28% since its offer for Anadarko became public. It traded on Friday down 0.9% at $47.84, a more than decade low, while Anadarko shares were down a fraction at $70.05. Chevron’s stock traded at $121.48 on Friday, about even with where it traded when it walked away from the deal.

Occidental has said it plans to shed most of Anadarko’s non-shale properties and has lined up France’s Total SA to acquire African oil-producing properties for $8.8 billion.

The deal has angered several Occidental investors and prompted activist Carl Icahn to seek seats on its board, calling the transaction “hugely overpriced.” He also demanded financial records and called on Hollub speed up asset sales.

He and other investors have criticized the financing agreement with Berkshire Hathaway for an 8% dividend on its $10 billion investment.

The deal has to be approved by Anadarko shareholders, who would receive $59 in cash and a 0.29 share in Occidental for each Anadarko share.

Credit rating firm Moody’s Investors Service estimated that the assumption of Anadarko’s debt and borrowings would add almost $40 billion in debt to Occidental. Moody’s put the company’s debt rating under review for downgrade.

(This story in the 4th paragraph, corrects to show that Evercore and Goldman each received a $53 million fee, not that they received a $53 million fee. In 6th paragraph, corrects to show that the initial offer needed a shareholder vote and required a change to its charter, not that the board pushed Occidental to hold a shareholder vote and eliminate a needed change to its charter).

Reporting by Jennifer Hiller; editing by Gary McWilliams, Dan Grebler, Steve Orlofsky and Diane Craft