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Wall Street is betting that
in order to acquire the independent energy company.
Occidental (ticker: OXY) bid $76 a share, consisting of half cash and stock, topping Chevron’s (CVX) offer of $65 a share, mostly in stock, which now is worth about $62 a share given the 6% decline in Chevron stock since it announced the deal on April 12.
On Thursday morning, Anadarko stock (APC) was trading at $71.59, up 19 cents on the day, after rising nearly 12% Wednesday. Chevron stock was up 10 cents at $118.38 and Occidental stock had risen $1.17 to $63.17.
“We think Chevron will raise in response to the bid, but to a last and final bid, short of Oxy at $76. Perhaps $72,” wrote Mizuho energy analyst Paul Sankey. Such a bid “can be recommended by the Anadarko board, in our view, given uncertainty around the Oxy shareholder vote and the better industrial logic for Chevron,” he wrote.
A Chevron bid of around $72 seems to be what investors are anticipating now, given that Anadarko shares are trading at $71.
One risk to the Occidental bid is that it requires a shareholder vote by both Anadarko and Occidental holders, while Chevron’s bid only requires approval by Anadarko holders. An Occidental shareholder vote would be no sure thing if Anadarko does favor the Occidental bid and Occidental shares then come under pressure.
Anadarko said Wednesday that it is considering the Occidental offer. Chevron is due to report its earnings on Friday before the market opens and is likely to address the situation on a conference call with investors. A Chevron spokesman said the company is confident that the deal it reached with Anadarko will be completed.
Sankey wrote that Chevron needs to boost its bid because it will be “hard for the Anadarko board” to pass up Occidental’s higher offer. Occidental said Wednesday that its offer is 20% better than Chevron’s.
Chevron’s market value at $225 billion is almost five times that of Occidental at $47 billion, so Chevron has much greater wherewithal to win a battle for Anadarko.
One sign that investors are betting on a Chevron win is that Occidental shares finished Wednesday with a loss of just 36 cents to $62 after trading under $60 earlier in the session, and were higher Thursday. If Wall Street thought Occidental would carry the day, its shares probably would be lower—in the high 50s.
Chevron shares were off $3.74 to $118.28 Wednesday as investors banked on a higher bid from the oil giant.
Despite what Chevron sees as the benefits of the Anadarko transaction, its shares have come under pressure since it announced its $33 billion deal. This reflects pressure from arbitragers trading the spread between Chevron and Anadarko stock, as well as a view among some investors that there’s no need for Chevron to do a transaction. Its energy output and free cash flow are growing after a period of elevated capital spending.
One arbitrager tells Barron’s that Chevron and Occidental share prices are a good tell on the situation. The stock going down—Chevron—is seen by the Street as the likely winner.