Chevron Walks Away From Anadarko Deal With $1 Billion Breakup Fee

Anadarko Petroleum Deal
An entrance sign at the Chevron refinery (Photo: Reuters)

After a brutal bidding war to acquire Anadarko Petroleum, one of its top bidders and the holder of a contract to buy the firm has tapped out. Chevron announced this week that it will not be submitting a new offer to Anadarko and it will be walking away from the deal to give the win to Occidental Petroleum. Occidental made an offer that was hard to refuse and it will soon take control of some of the most valuable assets of shale oil in the United States.

As a consolation prize and as part of its contract with Anadarko, Chevron will be walking away with $1 billion as a cancellation fee. According to reports, the money it will receive will reportedly be used to acquire another firm in the Permian Basin. Following the news that it would drop out of the bid, shares of the San Ramon-based energy company shot up by as much as 3 percent.

Earlier in the week, Anadarko announced that its board had unanimously decided to go with Occidental's higher offer of $38 billion. Chevron highest offer was around $33 billion to buy out the company. Anadarko gave Chevron a chance to counter the bid but stated that it would automatically go with Occidental if it failed to submit another offer.

With the recent backing of companies such as Warren Buffett's Berkshire Hathaway, Occidental was able to offer a stronger bid to acquire Anadarko. Occidental offered Anadarko 78 percent of its bid in cash and 22 percent in stock, while Chevron offered to pay 75 percent in stocks and 25 percent in cash.

In a recently released statement, Chevron's CEO Michael Worth stated that they just didn't see any point in winning at such a high cost. Worth explained that they did not want to negatively affect their returns just to win the deal. The company also revealed that in light of the recent developments, it will still be increasing its share buyback program's budget to $5 billion per year.

If it had won the bid, Chevron would have taken control of Anadarko's vast acreage in the Permian region, further cementing its position as a major player in the area. The deal would have also resulted in the merging of both companies' offshore operations in the Gulf of Mexico.

Unfortunately, Occidental managed to foil those plans by pulling a slightly higher bid thanks to a $10 billion investment it received from Berkshire Hathaway. It also managed to strike a deal with French oil firm Total, giving it $8.8 billion in additional funding in exchange for Anadarko's African operations. Through the deals, Occidental was able to offer a much larger cash component to its offer, ultimately allowing it to seal the deal.

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