Occidental Petroleum Corp.'s dogged determination to outbid Chevron Corp. for rival oil and gas producer Anadarko Petroleum Corp. was not exceptional in the history of dealmaking, but the way Occidental put together a pair of back-to-back side deals in order to solidify its winning bid for Anadarko was.
"I don't think I've ever seen anything like this because it wasn't just a poker game this time around between Oxy and Chevron trying to acquire Anadarko," Rice University professor of energy management Bill Arnold told S&P Global Market Intelligence on May 14. "You had moments of … Greek or Roman theater [with] this notion of deus ex machina, where this platform would come down from high in the theater with this savior of the situation, which in this case was this old guy from Omaha, Nebraska."
Warren Buffett committed to invest $10 billion in Occidental to help fund its $57 billion acquisition of Anadarko, a deal — announced publicly April 30 — that he told CNBC took less than an hour to put together.
Buffett told Squawk Box co-host Becky Quick that Occidental reached out to him through Bank of America on April 26, and an April 28 meeting was set.
"I got a call in the middle of the afternoon from Brian Moynihan, the CEO of Bank of America. And he said that they were involved in financing the Occidental deal, and that the Occidental people would like to talk to me," Buffett said in an interview that aired May 3. "They arrived at 10 a.m. And by 11 we had a deal. And they had us committed unequivocally, come hell or high water, for $10 billion."
A week after the meeting with Buffett, Occidental made a contingent deal to sell Anadarko's African assets, including a massive LNG project offshore Mozambique, to Total SA for $8.8 billion.
"One of the things … that was a real weakness for quite a while in this was [the question of] what to do with [Anadarko's] African assets, and in particular, Mozambique," Arnold, who had a 16-year career in government relations with Royal Dutch Shell PLC said. "To have done that with Total so swiftly was absolutely stunning. When I was at Shell it would have been a months-long process."
To observers, what unfolded over the course of the last month is a cautionary tale reinforcing what investors want from oil producers.
From April 11, the day before the drama began to unfold in public, through May 10, Chevron's stock was down 3.2% and Occidental's stock was down 18.2%. Occidental's determination to win the deal drove Anadarko's share price 56.1% higher, despite a 3.3% retreat the day the definitive agreement to be acquired by Occidental was announced. By contrast, Chevron shares climbed 3.1% the day it walked away from the deal.
"One thing I think it does is validate what's been said recently about the focus on capital discipline," Arnold said. "There are a lot of really important lessons. People aren't going to be able to get away with super-aggressive deals that don't meet that capital discipline test."
"For now, the real-time ding-dong battle has ended in victory for [Occidental CEO] Vicki Hollub," Mizuho analyst Paul Sankey wrote May 10. "She had a major self-inflicted defeat in financing the deal with Warren Buffett, which damaged her standing with existing shareholders, and a real victory with the massive [Total] deal."
Sankey said "the more that deal is considered … the less fathomable" that Total would pay $8.8 billion for "risky" assets, "seemingly with none of the kickers, such as Warren's notorious warrant," which Sankey pegged at a value of between $400 million and $1 billion.
"By the time the Oxy jet arrived in Paris, surely [Total] realized they were dealing with a highly motivated seller, to say the least; their deal was generous," Sankey said.
"While we know giving up on the numerous [Anadarko] synergies is a real punch to the gut, it's good to see [Chevron's] management walk the walk and bow out of the deal before it turned into a bidding war," Tudor Pickering Holt & Co. analysts wrote May 10. "While [Chevron] was financially capable of offering more it felt the $1 [billion] break-up was the better alternative for investors. … Management is firmly committed to capital discipline and returns as a top priority, and walking away was the ultimate expression of this."
"Traditionally you might have seen Chevron as the loser in this case. But I don't think so at all. I think it really burnishes their reputation, and they've got a war chest if they see some other assets," Arnold said.