NEW YORK: Chevron said Thursday it will not raise its bid for Anadarko Petroleum, ending a battle for choice US shale assets and clearing the way for an offer by Occidental Petroleum that is backed by billionaire investor Warren Buffett.
Chevron Chief Executive Michael Wirth, who had touted the deal with Anadarko last month, said it was now walking away because it did not want to overpay.
"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," Wirth said in a statement.
The announcement came three days after Anadarko characterized Occidental's bid as "superior" to Chevron's, putting the onus on Chevron to either pony up more money or raise a white flag and walk away.
Under their agreement last month, Anadarko is required to pay Chevron a $1 billion breakup fee. Chevron said it plans to use those funds for share repurchases.
Chevron shares rose 2.2 percent to $120.07 in mid-morning trading, while Anadarko fell 3.0 percent to $73.59 and Occidental sank 6.2 percent to $56.47. Analysts have expressed concerns that the purchase would leave Occidental with too much debt.
The battle for Anadarko -- a midsized US oil company based in Houston -- officially began April 12, when Chevron unveiled a transaction valuing Anadarko at $65 a share.
However, barely two weeks later, Occidental announced a competing bid of $76 a share and released a letter from Chief Executive Vicki Hollub to the Anadarko questioning why Anadarko had refused to entertain her company's superior bids before announcing the Chevron deal.
The battle has centered on Anadarko's robust position in the Permian Basin, an oil-rich region in West Texas and New Mexico where Occidental and Chevron also have substantial holdings.
Both companies viewed the Anadarko assets as critical in allowing them to boost production while keeping costs in check through economies of scale.
- No shareholder vote -
Occidental sweetened its bid by announcing it had received $10 billion in financing from Buffett's Berkshire Hathaway.
Then on Sunday night, Occidental announced a preliminary deal to sell Anadarko's Africa assets to French company Total for $8.8 billion, and adjusted the terms of its offer to increase the portion in cash and lower the payment in shares.
Hollub said the second offer removed the need for an Occidental shareholder vote on the takeover, and cleared up an issue Anadarko raised during the talks. Chevron's bid did not require a shareholder vote.
She described the Anadarko deal represented a "transformational" opportunity for Occidental, telling Wall Street analysts the company has "a tremendous asset base with a huge upside."
But the deal has not been popular with all shareholders. T. Rowe Price, which holds 2.8 percent of Occidental, has said it would oppose the Occidental board of directors at Friday's annual meeting because it won't hold a vote on the Anadarko transaction.
Moody has placed Occidental under review for a possible credit rating downgrade due to high debt.
"We regard the extent of this over-leveraging as problematic, leaving the company with less flexibility to confront an environment of weak commodity prices, and significantly heightening the urgency of debt reduction," Moody's said in a research note on Wednesday.
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