Dividends and Bid Tops Chevron’s Deal for Anadarko

In early April, all the major oil companies decided the West Texas oil was the place to be and Anadarko was sitting on some very good properties. Chevron bid first and it looked like it was a done deal. Occidental Petroleum saw the proposal and has decided to go one better. In an article by Bradley Olson and Rebecca Elliot, Occidental Petroleum has decided to go one better with a higher offer of $38 billion versus the Chevron bid of $33 billion.

Occidental Petroleum is offering $76 a share with 50% stock and 50% cash. Chevron offered $65 a share with 75% stock and 25% cash. Occidental Petroleum would use a bridge loan for the cash portion of the shares. Zoe Sutherland an analyst at Wood McKenzie said the Occidental Petroleum deal would increase the company’s leverage and stretch its balance sheets.

Occidental Petroleum has a large operation in the West Texas area but would be expect to sell billions in assets to pay for the deal. They had been talking to Anadarko for a few months.

Linking to dividend paying companies, there are always positives and negatives in every deal. If you are a shareholder you like cash to reinvest in another position, but the shares would be leveraged and if oil prices went down, the shares would be worth less money. Chevron offers less money but perhaps a better fit and higher medium term advantage if you want to keep their shares.

There are more questions than answers, till the next time – to raising questions.

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