[Editor's note: This story was updated at 10:57 a.m. CDT May 9. Check back for updates on this developing story.]

Chevron Corp. said May 9 it will not make a counterproposal to acquire Anadarko Petroleum Corp., leaving Occidental Petroleum Corp. the winner of the takeover battle for The Woodlands, Texas-based independent.

As a result, Chevron anticipates that Anadarko will terminate the previous merger agreement, which requires Anadarko paying Chevron a $1 billion termination fee. The company now plans to increase its share repurchase rate by 25% to $5 billion per year, according to a press release from San Ramon, Calif.-based Chevron.

UPDATE - Occidental, Anadarko Petroleum Make It Official With Merger Agreement

Anadarko had originally agreed to be acquired by Chevron on April 12 in a 75% stock and 50% cash transaction worth roughly $33 billion plus the assumption of $15 billion net debt. However, Houston-based Occidental, which had been rumored to be courting Anadarko, kicked off a takeover battle on April 24 by taking its roughly $57 billion offer, including debt, public.

However, Chevron declined to enter a bidding war for Anadarko despite having the firepower.

“While it has the financial capacity to match Occidental Petroleum’s offer, had it raised the cash portion of the consideration to compete with Oxy it would have materially increased its financial leverage and weakened its credit profile,” Pete Speer, Moody’s senior vice president, said in an emailed statement.

Instead, Chevron chose capital discipline and conservative financial policies, Speer added.

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

Drillinginfo M&A analyst Andrew Dittmar noted Occidental management “fought hard and pulled out all the stops” to make the deal with Anadarko happen, though he noted it all came down to Chevron’s reputation for conservative decision-making.

Still, “losing Anadarko probably stings a bit, given how strong a fit those assets were for Chevron,” Dittmar said in an emailed statement.

Largely believed to be key to the takeover battle is Anadarko’s nearly 600,000 gross-acre position in the Permian’s Delaware Basin. The portfolio of Anadarko—one of the world’s largest independent E&P companies—also includes deepwater projects offshore Africa and in the U.S. Gulf of Mexico plus a position in Colorado’s Denver-Julesburg Basin.

Dittmar doesn’t see any pressure for Chevron to turn around and do another deal now that the company has walked away from the Anadarko acquisition.

“However, should Chevron choose to make a move, we expect they would initially be looking at the larger Permian-focused independents especially those with substantial core acreage in the Delaware Basin,” he said. “It’s a relatively short list of companies there that can move the needle for Chevron.”

Chevron vs. Occidental Petroleum Permian Basin Asset Map (Source Chevron Corp, Occidental Petroleum Corp. Presentations April 2019)

Since taking its bid public, Occidental continued to sweeten its takeover offer for Anadarko by adding an up to $10 billion investment from Warren Buffet’s Berkshire Hathaway Inc. plus agreeing to divest Anadarko’s African assets in an $8.8 billion sale to Total SA.


Occidental Ups Ante In Anadarko Takeover Battle With Berkshire Hathaway Investment

How Total's CEO Pounced On Anadarko's African Energy Assets

The company also continued to revise its offer by boosting the cash portion of its bid to 78% on May 5. The increase—the equivalent of about $10.5 billion—made Occidental’s bid 23% higher than Chevron’s offer plus with a materially larger cash component, according to Greig Aitken, director of M&A research at global natural resources consultancy Wood Mackenzie.

“With added certainty around Oxy’s ability to complete the deal, it will be very difficult for Anadarko not to accept,” Aitken said in an emailed statement May 6. “Chevron has the firepower to increase its offer, but will have to decide whether it also has the appetite.”

Even though Occidental might have outmaneuvered Chevron, Moody’s view of a weakly positioned investment grade outcome for Occidental after a merger with Anadarko does not change.

“With the proceeds of the sale of assets to Total directed to debt reduction defraying a significant portion of the $12 billion increase in the cash component of [Occidental’s] revised proposal to acquire Anadarko, under the revised offer we continue to believe that [Occidental] would likely emerge from the review for downgrade with a weakly positioned investment grade rating,” Moody’s Vice President Andrew Brooks said May 8.

Occidental had said April 24 it anticipated closing a merger transaction with Anadarko in the second half of 2019. The company’s takeover offer for Anadarko does not require an Occidental shareholder vote.

Occidental also expects to close the African asset sale, which includes Anadarko’s Algeria, Ghana, Mozambique and South Africa assets, simultaneously with the Anadarko transaction or “as soon as reasonably practicable afterwards.”

The company’s financial advisers for its Anadarko takeover offer are BofA Merrill Lynch and Citi, and Cravath, Swaine & Moore LLP is its legal advisers. Evercore and Goldman Sachs & Co. LLC are acting as financial advisers to Anadarko. Wachtell, Lipton, Rosen & Katz is Anadarko’s legal adviser.

Credit Suisse Securities (USA) LLC was Chevron’s financial adviser for the Anadarko merger transaction and Paul, Weiss, Rifkind, Wharton & Garrison LLP was the company’s legal adviser.

Emily Patsy can be reached at epatsy@hartenergy.com.