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Chevron Greenlights Anadarko to Buffett-Backed Occidental

- By James Li

Chevron Corp. (CVX) announced on Thursday it will decline to submit a counter bid to acquire Anadarko Petroleum Corp. (APC), ceding the bidding war to Warren Buffett (Trades, Portfolio)-backed Occidental Petroleum Corp. (OXY).


The San Ramon, California-based energy company had four days to counter the Houston-based company's bid following Anadarko's statement that Occidental's bid of $59 in cash and 0.2934 of an Occidental common share constitutes as a superior proposal.

Chevron backs away, anticipates merger termination

Regarding the decision, Chevron CEO Michael Wirth said cost and capital discipline "always matter" and that "winning in any environment does not mean winning at any cost." Upon merger termination, Chevron expects to receive a $1 billion termination fee from Anadarko and plans to raise its share repurchases to $5 billion per year, a 25% increase.

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Shares of Chevron opened at $121.22, up 3.07% from Wednesday's close of $117.51. Gurus with large holdings in Chevron include Ken Fisher (Trades, Portfolio), Pioneer Investments (Trades, Portfolio) and the T Rowe Price Equity Income Fund (Trades, Portfolio).

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GuruFocus ranks Chevron's financial strength 7 out of 10 on several positive indicators, which include strong interest coverage, a Piotroski F-score of 8 and an Altman Z-score of 3.21. Chevron's debt-to-equity ratio of 0.21 is outperforming 76.56% of global competitors.

Buffett-backed Occidental completes preliminary steps in connection with merger

On Monday, Berkshire Hathaway Inc.-backed (BRK-A)(BRK-B) Occidental entered a binding agreement in which it will sell Anadarko's Algeria, Ghana, Mozambique and South Africa assets to Total SA (TOT) for $8.8 billion. The sale is contingent on Occidental completing its merger with Anadarko.

GuruFocus ranks Occidental's financial strength and profitability 6 out of 10: Although the company has a strong Piotroski F-score, Occidental's Altman Z-score of 2.80 suggests mild financial distress. Additionally, Occidental's profit margins, returns and three-year revenue growth rate outperform just approximately 62% of global competitors.

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Occidental's Piotroski F-score ranks a strong 8 out of 9 on positive indicators like increasing return on assets and higher current ratios year-over-year. Additionally, Occidental's gross margin has increased 7.87% over the past 12 months despite a five-year decline rate of 2.9%: Occidental's gross margin was approximately 63.15% as of December 2018, up from 55.28% as of December 2017.

Disclosure: no positions.

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This article first appeared on GuruFocus.