Oxy calls truce with Carl Icahn, makes changes to its board

By Scott Deveau, Kevin Crowley and Rachel Adams-Heard on 3/26/2020

HOUSTON (Bloomberg) --Occidental Petroleum agreed to a truce with activist investor Carl Icahn, ending a bitter 10-month campaign by the billionaire activist investor to fire the board and seize control of the company.

Now, Chief Executive Officer Vicki Hollub’s future will be in the hands of a new board after surviving Icahn’s calls for her resignation. But her most immediate challenge will be Occidental’s near $40 billion of debt at a time when oil is trading below $25 a barrel, near the lowest price in 18 years.

During his battle with Occidental, Icahn wanted to oust the company’s entire board, including Hollub, the firm’s stock dropped over 80% and the shale giant had its credit rating downgraded to junk.

As part of a deal announced Wednesday, four directors will retire from the company’s board and be replaced by two Icahn acolytes, as well as Herbalife Nutrition Ltd. board member Margarita Palau-Hernandez, according to an Occidental statement. It previously announced that former Chief Executive Officer Stephen Chazen will return as chairman.

Crucially, the board will create a new committee to explore “inquiries or indications of interest” from buyers for Occidental or its assets, the statement said. In exchange, Icahn has agreed to withdraw his slate of nominees, and will drop his lawsuit against the company in the Delaware courts.

The new directors will also sit on the other newly-reconstituted board committees, the company said.

Occidental shares were down 2.8% at 10:43 a.m. in New York trading, after earlier rising as much as 4.9%.

Icahn started building a stake in Occidental last May, when Hollub made an aggressive play to outbid Chevron Corp. for Anadarko Petroleum Corp. She won, and while the $37 billion transaction was completed in August, the difficulties only mounted from there.

Icahn called the deal “one of the worst disasters in financial history,” criticized Hollub for taking $10 billion in expensive financing from Warren Buffett and the board for having inadequate oversight of its CEO.

He increased his position in Occidental this month to become its second-largest shareholder after oil prices collapsed due to the coronavirus crisis and demanded the company explore a sale.

While the deal with Icahn ensures some stability at board level, Occidental’s big challenge is its nearly $40 billion of debt, mostly incurred in the Anadarko deal.

Executives have opened talks with debt and equity investors about ways to meet upcoming maturities. The company has a revolving credit facility that should help it through this year, but in 2021 has a wall of maturities that cannot be covered with internally-generated cash flow with oil below $25 a barrel, according to Raymond James.

It also faces potential anger from its staff. In a bid to save cash some employees will have their pay reduced by 30% while CEO Hollub’s salary will be reduced 81%, according to people familiar with the matter. The company also reduced its capital budget for the second time this month, putting it at almost 50% below its original plan. It also cut its dividend for the first time in almost 30 years.

“We will continue to take actions as necessary to further strengthen our balance sheet and ensure the long-term viability of our business,” Hollub said in a separate statement.

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