Billionaire activist investor Carl Icahn is challenging Occidental Petroleum Corp.’s $38 billion takeover of Anadarko Petroleum Corp., calling the transaction “fundamentally misguided and hugely overpriced” in a lawsuit that seeks corporate records related to the deal.
Icahn holds more than $1.6 billion of Occidental stock, according to the suit filed in a Delaware court Thursday. The suit also states Icahn is considering soliciting his fellow shareholders to call a special meeting and change the make-up of the board.
“The Icahn Parties believe that the Occidental board and management are in far over their heads, have made numerous blunders in recent months and might continue to trip over their feet if the board is not strengthened,” the filing said.
Occidental shares rose 1.4% while Anadarko fell 1%. Representatives for both companies didn’t immediately respond to requests for comment.
The suit questions Occidental CEO Vicki Hollub’s lack of experience in mergers and acquisitions and the $10 billion financing deal she reached with Warren Buffett. “A ninety-minute deal ‘negotiation’ with one of history’s canniest investors, is no place to gain M&A experience — at least if you care about protecting your stockholders,” the suit said.
The suit also criticizes the $8.8 billion sale of Anadarko’s Africa assets to Total SA. “From all appearances it seems that Occidental sold these assets in a quickly arranged fire sale before it even owned them.”
Instead of trying to buy Anadarko, “at present market prices Occidental should have been a seller — not a buyer.”
If oil prices fall below $45, the suit says there’s “substantial risk” that Occidental will have to cut its dividend. Icahn sent a letter to Occidental on May 21 seeking records related to the deal. On May 28, Occidental responded that it was considering the demand.
When Chevron said that it would not raise its bid for Anadarko Petroleum, it was not only the end of a fierce monthlong takeover battle with Occidental emerging as the winner. The decision will also make Occidental the undisputed top producer in the Permian Basin, the field that turned the United States into a major oil exporter.
“It’s an extraordinary journey for a company that started with a few gas wells in the Central Valley of California to have found its destiny as a world-class company in the center of the most dynamic place in the entire global oil industry,” said Daniel Yergin, author of “The Prize: The Epic Quest for Oil, Money and Power.”
In some ways the company’s hard-fought acquisition of Anadarko is a throwback to a very different chapter in Occidental’s centurylong history.
From 1957 to 1990, the company was led by Armand Hammer, who made big, risky deals in Libya and around the developing world to turn Occidental into a big-name oil producer. Under Mr. Hammer, Occidental became a conglomerate with interests in horse breeding and meatpacking.
But in recent decades, Occidental retrenched and has increasingly focused on the Permian Basin, which recently became the world’s most productive oil field. Heading into the takeover battle, Occidental was virtually tied with Chevron as the leading company in the basin, stretching across parts of Texas and New Mexico.
For years Occidental was a rumored takeover target for companies aiming to expand in the Permian, like Royal Dutch Shell.
But Occidental and its chief executive, Vicki Hollub, had different ideas. For two years, the company sought to expand its presence in the basin by quietly courting Anadarko, which has identified 10,000 drilling locations in the field that are near Occidental’s operations.
Those overtures became public only after Chevron offered last month to buy Anadarko for $33 billion.
Ms. Hollub, who has kept a low profile since becoming the first woman to lead a major American oil company three years ago, expressed chagrin that Anadarko’s board had initially turned down Occidental, which had offered more than Chevron.
Within days, Occidental made a public offer for Anadarko, this one for $38 billion. To blunt talk that the company did not have Chevron’s deep pockets, Ms. Hollub and her lieutenants fortified their bid by securing a $10 billion investment from Warren E. Buffett’s holding company, Berkshire Hathaway. Then Occidental lined up a deal to sell Anadarko’s operations in Algeria, Ghana, Mozambique and South Africa to Total, the French oil giant, for $8.8 billion, raising more money.
The tide turned strongly on Monday when Anadarko’s board reversed itself and rejected Chevron’s bid in favor of the latest one from Occidental.
Chevron had until Friday to increase its offer. The company, which is four times the size of Occidental and has vastly more financial resources, could have easily outbid its smaller rival, but it decided to walk away from a bidding war and instead claim a $1 billion breakup fee.
“Winning in any environment doesn’t mean winning at any cost,” Michael Wirth, Chevron’s chairman and chief executive, said in a statement. “Cost and capital discipline always matter.”
Competitive takeovers for big oil companies are unusual, but many analysts have said Anadarko’s 600,000 acres in the Permian are among the most potentially profitable in the country. The company is also a major presence in the deepwater fields of the Gulf of Mexico, where production is rising.
Interest in the Permian has also intensified recently because pipeline and port construction in and around the gulf will make it easier to export oil and gas over the next decade.
But not everyone connected with Occidental is happy with Ms. Hollub’s move. The company’s shares dropped more than 6 percent on Thursday as some Wall Street analysts panned the acquisition as too expensive.
Moody’s, the credit ratings firm, said that the deal could increase Occidental’s debt by $40 billion and that the company could struggle to sell assets, reduce costs and effectively integrate Anadarko, which would significantly increase the company’s operations.
Chevron’s withdrawal appeared to be an acknowledgment that investment decisions involving shale oil should reflect how quickly those wells become depleted. The volatility of oil prices in recent years could make that challenge more pronounced.
Ms. Hollub has insisted that Occidental can make Anadarko’s Permian fields much more productive and profitable.
“We look forward to signing a merger agreement with Anadarko and realizing value for our stakeholders as soon as possible,” Occidental said on Thursday.
Anadarko’s chief executive, Al Walker, praised the outcome of the bidding war, saying in a statement, “We are proud of the substantial premium we have delivered to our shareholders.”
Greig Aitken, director of mergers and acquisition research at Wood Mackenzie, a consulting firm, said some Occidental investors might find it disturbing that their company was paying so much more than Chevron had been willing to.
“Occidental may still face a fight at its annual general meeting from some investors opposed to the deal,” Mr. Aitken said, referring to the company’s shareholders meeting on Friday in Houston.
The company’s investors will not get to vote on the Anadarko acquisition, but some might register their disappointment in other ways. The asset-management firm T. Rowe Price, one of Occidental’s largest shareholders, has threatened to vote against the board at the annual meeting.
Occidental “will have to move fast to complete its divestment plan and integrate the newly acquired business” to allay investors’ concerns about the deal, Mr. Aitken said.
As for Chevron, the company is likely to continue to grow in the Permian. Last year, Chevron’s output in the basin surged by more than 70 percent from 2017.
Chevron may now consider acquiring other companies active in the Permian Basin, including Pioneer Natural Resources, Concho Resources and Diamondback Energy, although executives said they would not jump at any deal. Chevron said it would use the $1 billion breakup fee to buy back shares.
Investors applauded Chevron’s decision, with the company’s shares climbing more than 3 percent on Thursday.
“Chevron just demonstrated its commitment to capital discipline and conservative financial policies,” said Pete Speer, a senior vice president at Moody’s, the credit ratings firm. Had Chevron added more cash to its offer, as Occidental did several days ago, he said, “it would have materially increased its financial leverage and weakened its credit profile.”
Image: Anadarko Petroleum offices in Woodlands, Texas