THE VAGARIES OF EXPANDING OCCIDENTAL – PETROLEUM INDSTRY

 

Occidental Petroleum CEO Vicki Hollub has been going full-bore to acquire ownership of Anadarko Petroleum, primarily because of the company’s Permian Basin assets.

Until recently, Hollub’s biggest competitor for the acquisition was Chevron, who has bowed out of the bidding.  Which leaves CEO Hollub the victor, right – ?  Well, not exactly.  In order to pull off the deal and be able to “sweeten the pot” over what Chevron had offered, Hollub arranged a “transformational deal” with Warren Buffet in which he granted a $10 billion endorsement.  That arrangement lowered the amount of equity that Occidental needed to put forward for the deal and, in effect, eliminated the need for a shareholder vote of endorsement on the acquisition of Anadarko.  That was another part of the negotiation with Andarko, whose board had said they were wary of the sale going to a vote of shareholders which they saw as a potential stumbling block.  And, even though CEO Hollub, in a call with investors on Monday, explained that there were two options going forward on the deal: 1 – increase the share price, or 2 – provide the clarity of closing that Andarko wanted (that is, make it so that investors would not vote on the deal).  Hollub said at that time, “We felt like clarity of closing was the lower cost.”  And, that determination has landed CEO Hollub in a bit of trouble, as there are a number of outspoken shareholders who are protesting the deal.  T. Rowe Price, for example, has said that it would vote against Occidental’s board slate at its meeting today.  And Carl Icahn will likely be part of the mix of protestors, as well.  Icahn is known for his proclivity to try to break up deals and having his investing rival, Buffet, as part of this deal will likely spur his opposition.  Thus, the relevant question is where the pressure might lead.  It’s possible that some of those investors who are planning to protest the acquisition will, instead, want Occidental to be the company on the block.  There are estimates of the company’s value that could conceivably support this position – Mizuho Securities believes that it is worth more than $82 a share based on its asset value which is 45% above the current price (ref WSJ). It is expected, however, that the deal will be allowed to go through, but that Hollub’s way of dealing with the issue may have let her in for more difficulty later on.

ALL THE MOVING PARTS:  CEOS OF COMPANIES ARE THE FIRST AMONG EQUALS.

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