Chevron bows out; Oxy wins Anadarko

This combo of file photos shows the logo for Anadarko Petroleum Corp. on the floor of the New York Stock Exchange on April 12, 2019, left, and a logo on the Occidental Petroleum building in Los Angeles on Jan. 26, 2010. A bidding war is breaking out over Anadarko Petroleum, with Occidental making an offer worth $76 per share in cash and stock that it says is about a 20% premium to Chevron's $33 billion deal. (AP Photos) less This combo of file photos shows the logo for Anadarko Petroleum Corp. on the floor of the New York Stock Exchange on April 12, 2019, left, and a logo on the Occidental Petroleum building in Los Angeles on Jan. ... more Photo: Reed Saxon, Associated Press Photo: Reed Saxon, Associated Press Image 1 of / 7 Caption Close Chevron bows out; Oxy wins Anadarko 1 / 7 Back to Gallery

Chevron said Thursday it will bow out and allow the smaller Occidental Petroleum to win the nearly $40 billion bidding war for Anadarko Petroleum.

Houston-based Oxy's dogged determination allowed it to acquire The Woodlands oil and gas producer and its prized assets in West Texas' booming Permian Basin, a move that should keep Oxy as the Permian's top producer for the foreseeable future.

Chevron's decision culminates an operatic takeover battle between the California supermajor and Oxy that is unprecedented in the energy sector this century. Anadarko initially agreed to be bought by Chevron, spurning Oxy's bigger officer in the process, only for Oxy to keep sweetening the deal until Anadarko could no longer say no.

Chevron simply said it didn't want to overpay and opted to walk away.

"Winning in any environment doesn't mean winning at any cost," said Chevron Chief Executive Michael Wirth. "Cost and capital discipline always matter, and we will not dilute our returns or erode value for our shareholders for the sake of doing a deal."

By backing out, Chevron leaves the table with a consolation prize of a $1 billion breakup fee, which it said it will dedicate mostly to an increased share repurchase program, also giving Chevron the option of chasing other acquisitions. "Capital discipline just earned our shareholders $1 billion," added a Chevron spokesman.

The deal is expected to put Occidental on a tier with Houston's ConocoPhillips as the biggest independent oil and gas producers - although Oxy also owns pipeline and petrochemical businesses - and only below the Big Oil majors like Chevron and Exxon Mobil.

"We look forward to signing a merger agreement with Anadarko and realizing value for our shareholders as soon as possible," Oxy said Thursday in a prepared statement after Chevron backed out.

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Oxy moved its headquarters from Los Angeles to Houston five years ago and has increasingly focused on Permian growth. But, behind the scenes, Oxy and its Chief Executive Vicki Hollub have pursued Anadarko for nearly two years, hoping to further boost its Permian position and diversify with other assets in Colorado, Wyoming, the Gulf of Mexico and beyond.

Chevron, however, swooped in earlier this year, seemingly stealing Anadarko from under Oxy. Nearly a month ago, Anadarko turned down Oxy's bigger offers and accepted Chevron's $33 billion bid at $65 per share, deeming Chevron a better fit and a safer long-term value.

RELATED: Oxy makes new Anadarko offer for nearly 80% in cash

Oxy though upped its offer to about $38 billion at $76 per share, critically increasing the cash portion of its cash-and-stock bid from 25 percent to nearly 80 percent in order to assuage the concerns of many investors and to avoid a shareholder vote.

In the meantime, Oxy recruited Warren Buffett and his Berkshire Hathaway firm to commit $10 billion to help finance the deal and secure an ownership stake in the expanded Oxy.

Oxy also agreed to sell Anadarko's Africa assets for $8.8 billion to the French energy major Total. The cornerstone part of that deal, the multibillion-dollar Mozambique liquefied natural gas project, is expected to begin heavy construction this summer before the handoff to Total in 2020.

But that doesn't mean everything within Oxy is copacetic. Investors such as T. Rowe Price and famed corporate raider Carl Icahn have expressed some level of concern or opposition to the deal.

Oxy also likely will suffer a downgraded investment rating by winning the bidding war, the debt rating agency Moody's Investors Service said Wednesday.

Oxy will have to take on substantial debt to buy Anadarko, including The Woodlands' oil and gas producer's existing $17 billion debt load, said Moody's Vice President Andrew Brooks.

Oxy has pledged to make debt reduction a top priority after closing the Anadarko acquisition near the end of this year.

Now, the big question is what will happen to Anadarko's big campus in The Woodlands and its nearly 2,000 employees there. Chevron had pledged to keep the campus open and retain many of the workers, but Oxy has thus far declined to comment on the topic.

Oxy, which has about 3,000 Houston-area workers, already is planning to move its headquarters from Houston's Greenway Plaza to ConocoPhillips' old hub in the Energy Corridor.

This is a developing story. Please check back for more.