Occidental Petroleum Corp increases cash component of its bid, eliminates risk of voting down its bid

The strategic move, which essentially place Occidental Petroleum ahead of Chevron, risks a potential clash with Carl Icahn.

In a significant development, Occidental Petroleum Corp increased the cash component of its $38 billion bid to acquire Anadarko Petroleum Corp thus eliminating a requirement for its deal to be approved by Occidental’s shareholders.

This means that Occidental shareholders who oppose the bid, which includes T Rowe Price, will not get a chance to vote it down.

While the development adds more certainty to Occidental’s offer, it also risks a fight with billionaire investor Carl Icahn, who according to sources has been amassing a stake in Occidental in order to challenge its Anadarko offer.

On Monday, Anadarko said Occidental’s bid could potentially be superior to Chevron’s; negotiations are however continuing.

On Sunday, France’s Total SA stated, it has agreed with Occidental to purchase Anadarko’s African assets for $8.8 billion, provided Occidental’s bid gets cleared. This removes the risk of Occidental not being able to shed Anadarko assets it considers non-core to the deal.

On Sunday, Occidental has also submitted a new $76 per share offer to Anadarko, structured as 78% cash and 22% stock, as opposed to an even cash/stock split in its $76 per share offer previously. As a result of this offer, the number of Occidental shares required to fund the bid is below the issuance threshold that would have triggered a vote on the deal by Occidental shareholders.

However, Anadarko’s shareholders will still get to vote on the deal.

The bidding war for Anadarko underscores the value of its assets in the lucrative Permian Basin of West Texas and New Mexico. The vast shale field holds oil and gas deposits that can produce supplies for decades using low-cost drilling techniques.

“The financial support of Berkshire Hathaway as well as the agreement we announced with Total allows us to delever our balance sheet while focusing our integration efforts on the assets that will provide the most value for us,” said Occidental’s Chief Executive Officer Vicki Hollub in a statement.

In the event Occidental’s bid is declared superior than Anadarko’s, Chevron will be given four days to match Occidental’s offer, according to the terms of the contract between Chevron and Anadarko.

If Anadarko abandons Chevron for Occidental, it will have to pay the latter a $1 billion deal breakup fee.

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