The Sweetened Winning Bid
On May 5, 2019, as part of the financing plan, Occidental entered into an agreement with Total to sell Anadarko’s African assets for for $8.8 billion , contingent on successfully completing the acquisition of Anadarko.
The assets to be sold to Total represent approximately 6% of the expected net production and approximately 7% of the cash flow after capital expenditures of Occidental in 2020 pro forma for the acquisition of Anadarko.
At the same time, Occidental increased the cash portion of its $76-per-share offer to a level that would allow it to make a bid that does not require the approval of its shareholders. Under the new terms, the offer comprises $59 in cash and 0.2934 shares of Occidental common stock per share of Anadarko. (78% Cash and 22% Stock)
This modification (of not requiring a shareholder vote) would become one of the major arguments brought by Carl Icahn later on.
Vicki Hollub, CEO of Occidental, also explains in her letter to Anadarko’s Board,
Our revised proposal does not require an Occidental shareholder vote, which has been repeatedly cited as the explanation for why you previously chose Chevron’s $65 offer over our $76 offer
Plus, the $1 billion breakup fee would be borne by Occidental after the acquisition.
The bidding war didn’t escalate.
On May 9, 2019, Occidental won the battle for Anadarko as Chevron exited bidding.
“Costs and capital discipline always matter,” Mr. Wirth said. “An increased offer would have eroded value to our shareholders.” Shares in Chevron rose 3.1% on Thursday. Occidental’s stock fell 6.4%, while Anadarko’s shares declined 3.2%.
Shareholders’ Discontent & Carl Icahn Coming
Along the bidding process, on the day (April 30) that Occidental secured Berkshire’s money, T. Rowe Price Group, one of the largest shareholders of Occidental Petroleum, says it opposes the energy company’s proposed merger with Anadarko Petroleum.
We think there is significant execution risk with the Anadarko deal and it would increase Occidental’s financial leverage significantly as well.
– John Linehan, manager at T Rowe Price Equity Income fund
On May 3, Bloomberg reported that Carl Icahn had built a small stake in Occidental Petroleum Corp.
Some investors expressed their intention to vote against approving Occidental’s Board.
At Occidental’s annual meeting in Houston on Friday (May 10), a proposal cutting the percentage of shareholders required to call a special meeting (from 25% to 15%) was backed by investors speaking for 60% of the shares voted, in defiance of opposition from Occidental’s board.
On May 30, Carl Icahn sued Occidenta over its acquisition of Anadarko, calling its $38 billion deal to buy Anadarko Petroleum Corp. “fundamentally misguided”.
Icahn argus that the Purchase is a Levered Bet on the Price of Oil, as Occidental’s debt (and debt-like preferred stock) increases from approximately $10 billion to over $45 billion.
The Icahn parties estimate that if the price of oil declines to approximately $45 per barrel or below for an extended period of time, Occidental might be forced to cut the common dividend. The warrants given to Berkshire alone were worth approximately $1.2 billion on the day the preferred deal was announced. And the singular focus to win the Anadarko bid at any cost prevented Occidental from
maximizing value in its sale of Anadarko’s African assets. [Court Document]
However, the complaint was to seek certain books and records relating to the Anadarko acquisition, etc. And eventually, in September 2019, the court ruled in favor of Occidental.
On June 26, in a preliminary copy, Icahn called for a special shareholder meeting where he plans to oust and replace four Occidental directors and change the company’s charter through a stockholder consent solicitation to prevent it from ever engineering a similar takeover again. [Icahn Solicitation Statement – Preliminary] [Icahn Solicitation Statement – Definitive]
On July 22, Icahn published an open letter to Occidental shareholders, four days after the definitive proxy statement was filed.
On August 8, Occidental announced that it has completed the acquisition of Anadarko.
[Icahn’s second and third open letters on August 13 and August 28]
In the third letter, Icahn opposed the two new board members (not in Icahn’s slate) proposed by Occidental.
On November 8, in his fourth open letter,
Earlier this year we owned over 33 million shares of OXY, but recently we reduced the size of our investment. I still own almost 23 million shares, valued at almost $900 million, but this has become a very risky investment and without changing the incumbent Board and potentially the CEO, and in the absence of accountability for the OxyDarko Disaster, I am very concerned.
We fully intend to run a proxy fight, and if elected, work to right this teetering ship.
