Occidental shares plunge to 10-year low after Anadarko win

By Kevin Crowley, Scott Deveau and Caleb Mutua on 5/10/2019

HOUSTON (Bloomberg) -- Occidental Petroleum will hear directly from investors one day after clinching victory in the battle for Anadarko Petroleum and seeing its shares touch a new 10-year low.

The oil company will host its annual general meeting Friday in Houston, including an investor vote on the board of directors. The meeting could become a proxy referendum on the $38 billion deal, which has shaved 10% off Occidental’s market value. Chevron’s decision Thursday to walk away from its $33 billion bid for Anadarko cleared the way for Occidental to sign a merger agreement, ending a public takeover battle―a rarity in the oil industry.

CEO Vicki Hollub persuaded the world’s fourth-richest person and one of Europe’s biggest oil explorers to help back her bid, but shareholders may require more convincing. At least one large investor, T. Rowe Price Group Inc., has said it will vote against the nine-member board, which includes Hollub. Last year, Hollub received 99.6% support from shareholders who cast a vote at the meeting.

In an effort to make Occidental’s bid more competitive, Hollub agreed to take on a $10 billion investment from billionaire Warren Buffett last month and increased the cash portion of her bid to avoid the need for a shareholder vote.

The financing -- contingent on Occidental reaching a deal -- comes with a hefty price tag, with Buffett to receive 100,000 preferred shares that will accrue dividends of 8% annually. That’s a substantial premium to the average 3.8% coupon on about $10.4 billion of outstanding debt, according to data compiled by Bloomberg.

She also agreed to sell Anadarko’s assets in four African nations to Total for $8.8 billion, contingent on Occidental acquiring the company.

Occidental’s shares closed down 6.4% on Thursday, the worst performance in the S&P 500. The company’s bonds have also come under pressure. The price of its 4.2% notes due 2048 has dropped about 7% since Occidental’s interest in Anadarko was made public on April 12.

No Choice

T. Rowe Price said Thursday it intends to vote against the board at the meeting because Hollub and her team restructured their Anadarko bid to remove the need for a separate vote on the deal. T. Rowe Price is Occidental’s seventh-biggest investor, according to data compiled by Bloomberg.

“Given the fact that the Occidental management team has refused to put this to a shareholder vote, we feel like we’re left with no choice” said John Linehan, a T. Rowe portfolio manager.

Activist investor Carl Icahn has also built a small position in Occidental but is unlikely to mount a challenge to the deal, people familiar with the matter said. An Occidental spokesman declined to comment on the meeting.

Other investors haven’t decided yet on how they will vote.

"I would say that certainly the bid from Occidental was a bit unexpected in our view and so it does make us rethink what we thought Occidental’s strategy was on a go-forward basis, with or without Anadarko," Noah Barrett, an energy analyst at Janus Henderson, which manages $328 billion including Chevron, Occidental and Anadarko stock, said Wednesday in an interview.

Special Meeting

He said his firm has yet to determine how it will vote.

‘‘Ultimately, confidence in the management and confidence in what we perceive to be the company’s strategy going forward is part of the research and analysis that we did to determine our willingness to be shareholders," he said.

Investors will also be given the option to vote on a shareholder proposal recommending the company reduce its threshold needed for investors to call a special meeting from 25% to 15%. Two prominent shareholder advisory firms -- Institutional Shareholder Services Inc. and Glass Lewis & Co. -- have urged investors to support the proposal. They both noted that under its current structure, no single shareholder could act unilaterally to call a special meeting at the proposed threshold.

The meeting will be held at Occidental’s conference plaza in Houston. Both ISS and Glass Lewis recommend shareholders vote for the company’s slate of directors.

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