This is a note about the bidding war for Anadarko (APC) after the market has had some time to process the oxidic bid. The spread to the OXY offer is still 4% + (see the M&A dashboard), this means an annual return of 17% + if the end date is approximately correct.
Analysts and the market are skeptical because:
- APC's board of directors did not appear very willing to engage OXY's board.
- Anadarko's board rejected the offer from Occidental because of greater risk of major agreement.
- A potential transaction would blow OXY's influence and stretch the balance.
Chevron is seen as unlikely to attempt to offer more than Occidental, as the board is uncomfortable with taking on additional risks, according to two people near the company.
Ms Hollub said on a conversation with analysts that she was "very confident" that she would get the support she needed. She later told the Financial Times that when the company had talked to some big investors on Wednesday morning to explain the details of the plan, the reaction had been "OK, we'll get it now"
Paul Sankey, an analyst at Mizuho, wrote in a note : "We think the bid is a very bad idea. It pretty much does all of us talking to."
Many causes reported by the media are skeptical. I must say I was skeptical of another commandment that came as well. See my public article here. It didn't make much sense to me. After all, there are many energy savings out there. Even if you want to have permeric area specifically, you can get it through buying out various listed companies. Why get into a bidding war over Anadarko specifically?
When it appeared that OXY had offered, I immediately had similar abuses about how it would stretch OXY's balance. I'm still sympathetic to that argument. But OXY seems to have the funding in place, and the shareholders can get around after the Occidental tours them and makes their case.
Occidental's CEO was also shown on Bloomberg and this interview conveyed to me that OXY is likely willing to further improve the offer if needed. She doesn't say it directly, but that's how I read her answers to questions about whether they would offer a collar, etc. We have the potential for a very interesting (and rare for the sector) bidding war here.
The negative response from the Occidental shareholders did not hear very encouraging, but if we check out the large shareholder data from Morningstar, a familiar pattern emerges. There are all these passive stores.
Notarial shareholders
Anadarko shareholders:
Data: Morningstar
FT also reported a few minor bearish facts (weight min):
Ms Hollub said on a conversation with analysts that she was "very confident" that she would get the support she need. She later told the Financial Times that when the company had talked to some big investors on Wednesday morning to explain the details of the plan, the reaction had been " OK, we'll get it now ".
Also, I don't think the sources talked to the FT that a Chevron shock is off the table. Chevron will try to get this OXY bid off without having to pay, but yes ... Of course, that's what they prefer.
Then again, I have no evidence that activists come into Anadarko, which was rumored at the time of the original Chevron bid.
Finally, one of the reasons I'm inclined to believe that this agreement is further up is that Anadarko has traded over $ 100 per share in the past. And very interesting right before this deal, there was a fairly large gap between the restoration of the WTI prices and Anadarko's share price. Every buyer is at least somewhat opportunistic here:
Data by YCharts
Conclusion
The market seems to have a higher probability that Anadarko will come with the original Chevron agreement than I did in a previous note. I still favor the most greedy path ahead to hold onto my stock and draw a bump. Since I really disagree with the market and have a less skeptical view, I have increased my position a little.
Take a look at Investments' Special Situation Report if you are interested in uncorrelated returns. We look at special situations such as spin-offs, share buybacks, rights offerings and M&A events such as Anadarko bid war. Ideas like this are particularly interesting in today's current stages of the business cycle.
Enlightenment: I am / we are long APC. I wrote this article myself, and it expresses my own opinions. I do not receive compensation for it (other than from Seeking Alpha). I have no business relationship with a company whose stock is mentioned in this article.
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