Activist investor seeks to break up Noble Energy’s sale to Chevron

Scott Deveau 9/9/2020

(Bloomberg) --Activist investor Elliott Management Corp. plans to push for Noble Energy Inc. to abandon its plans to sell itself to Chevron Corp., arguing the deal undervalues the oil and gas producer, according to people familiar with the matter.

The New York-based hedge fund, which is run by billionaire Paul Singer, believes the takeover was done at the wrong time for the wrong reasons, said the people, who asked not to be identified as the matter is private. Elliott believes the company is better positioned to benefit from a recovery in oil prices on a standalone basis, and should consider selling its Mediterranean assets when that happens, they said.

While the size of Elliott’s stake in Noble hasn’t been revealed, the firm was granted early termination under the Federal Trade Commission’s Hart-Scott-Rodino Act -- a requirement when an investor buys shares above a certain threshold and seeks talks about topics such as strategy or management changes. Elliott built its position after the $5 billion deal was announced in July, and owned all of its shares prior to the record date to vote on the deal, the people said.

“We believe our offer represents a fair value for the business and that the transaction will create long-term value for shareholders of both companies,” said Braden Reddall, a Chevron spokesman, in a statement, adding that the company continues to believe the transaction will close in the fourth quarter.

A representative for Elliott declined to comment. A representative for Noble wasn’t immediately available for comment.

Noble shares rose 2% at 10:30 a.m. in New York. Chevron shares climbed 2.2%.

Chevron agreed to buy Noble in an all-share deal as the oil giant looks to beef up its presence in the Permian Basin. The deal would also increase Chevron’s exposure to the Denver-Julesburg Basin in Colorado, and enlarge its footprint in the Eastern Mediterranean by adding the Leviathan gas field off the coast of Israel.

Deal Premium

While the deal was struck at roughly a 7.5% premium to where Noble’s shares were trading, it was made after the stock lost about 60% of their value since the start of the year amid a rout in oil prices and the outbreak of the coronavirus.

Noble’s Chief Executive Officer Dave Stover said at the time that the deal would allow his company’s investors to maintain upside exposure in the combined company and enjoy much greater scale.

Elliott believes members of Noble’s management stand to make about $88 million in various forms of compensation from the deal, including $60 million for senior managers, the people said. The investor also believes that Noble investors received a poor ratio of Chevron shares and so won’t benefit from a recovery in oil prices as they would if the company was a standalone entity.

Noble’s shareholders are scheduled to vote on the deal on Oct. 2. The agreement carries a $176 million termination fee that is payable by either party under certain circumstances if the transaction isn’t consummated, according to a regulatory filing. That fee isn’t payable if Noble’s investors vote down the deal.

Elliott has a history of agitating for changes at some of the world’s largest companies, including AT&T Inc., SoftBank Group Corp. and Twitter Inc. As of July 1, Elliott had $41 billion of assets under management, its website shows.

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