Chevron exits bidding war for Anadarko

Chevron has said it will not increase its offer for Anadarko Petroleum, leaving the way open for the ‘superior’ $55bn cash and stock bid put forward by Occidental Petroleum.

‘Winning in any environment doesn’t mean winning at any cost. 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,’ said Chevron’s Chairman and CEO Michael Wirth.

Upon termination of the merger agreement, Anadarko will be required to pay Chevron a termination fee of $1bn.

Commenting on the news, Greig Aitken, Director of M&A Research at Wood Mackenzie, says: ‘Anadarko represented a fantastic opportunity for Chevron, but it wasn't crucial in a portfolio sense. Chevron wields an enviable growth profile among the majors. It is already a leader in US tight oil, underpinned by its low-royalty, contiguous acreage position throughout the Permian. We thought Chevron had room to up its offer without destroying value – and in oil and gas M&A, that's generally an achievement for any buyer. But it looks like Chevron wasn't content with just breaking even.’

He adds: ‘The bidding war it found itself in was unexpected, and eroded the value creation opportunity that prompted Chevron to move for Anadarko's portfolio originally. Chevron can afford to be selective in its business development. Pulling out sends a very strong, very positive message on capital discipline. We expect Chevron will remain on the lookout for good value business development opportunities throughout the US, continuing to play its strengths as the US tight oil super-major.’

Aitken adds that Chevron's walking away may also prompt some ‘soul-searching’ among Occidental investors. ‘The fact that the deal was too rich for Chevron may raise concerns about Occidental's ability to create value. No one wants buyers' remorse in a $55bn plus purchase. Occidental may still face a fight at its Annual General Meeting from some investors opposed to the deal. Balance sheet pressure and expensive financing is now a reality for Occidental; it will have to move fast to complete its divestment plan and integrate the newly-acquired business.’