Carl Icahn (Trades, Portfolio) on Thursday called on Occidental Petroleum (OXY, Financial) to replace four of its board directors in connection with their handling of the company’s pending acquisition of Anadarko Petroleum (APC, Financial), which involves financing from Warren Buffett (Trades, Portfolio)’s Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial).
The activist investor, who has a $1.6 billion stake in Occidental, said the company directors “made a number of mistakes” in pursuing the acquisition, according to a filing. Namely, it overpaid and did not allow shareholders to vote on the final transaction.
“In the opinion of the Icahn Participants, the path to greater value for the Company’s stockholders is through good governance,” Icahn wrote. “More specifically, the Icahn Participants believe it is important to add new directors to Occidental’s Board of Directors to oversee future extraordinary transactions like the Anadarko transaction and to ensure that they are not consummated without stockholder approval when appropriate.”
Anadarko, a Woodlands, Texas-based independent oil and gas company, withdrew from a merger agreement with Chevron Corp. (CVX, Financial) on May 9 after Buffett’s Berkshire Hathaway committed $10 billion to an acquisition bid from Occidental. The bid, Occidental’s second for the company, both increased its offer to 78% cash and 22% stock from 50% cash and 50% stock and canceled its requirement of a shareholder vote.
“Our revised proposal does not require an Occidental shareholder vote, which has been repeatedly cited as the explanation for why you previously chose Chevron’s $65 offer over our $76 offer,” Occidental President and CEO Vicki Hollub wrote in its May 5 letter to Anadarko’s board.
Occidental, a Houston-based international oil and gas company, said it would finance the acquisition with balance sheet cash and debt, including the $10 investing from Berkshire Hathaway. It planned to reduce debt over the following two years with free cash flow growth, and synergies and portfolio optimization realized through the merger.
It also slated $10 billion to $15 billion in divestitures over at most two years. Of that, it expects to make $8.8 billion through a deal to sell assets in Africa to Total SA (TOT, Financial) in a deal inked around the same time. The transaction is contingent on Occidental completing its acquisition of Anadarko.
Boards of both Occidental and Anadarko approved the deal in unanimous votes.
Icahn did not specify what other “mistakes” it believed Anadarko made during the acquisition process, but said the deal had enough problems that it might not have obtained shareholder approval.
“The Icahn Participants believe that the Anadarko transaction is a high-risk strategy that, if given the opportunity, may not have been approved by the Company’s stockholders,” Icahn wrote. “In the opinion of the Icahn Participants, the Board and management of the Company structured the transaction to avoid requiring stockholder approval, even though the terms and conditions of the Anadarko transaction will fundamentally transform the Company’s business and prospects.”
In addition to replacing directors, Icahn called for a number of shareholder-friendly proposals. Among them is the formation of a strategic review committee of the board to find alternatives to “maximize value for stockholders” and paving the way for stockholders to call special meetings with greater ease.
Occidental acknowledged Icahn’s letter Friday, saying it maintained “an open dialogue with all our shareholders.”
“We remain focused on completing our transaction with Anadarko in the second half of 2019, which we believe will create significant value and enhanced returns for shareholders,” the company said in a statement.
Buffett said he invested in Occidental as a play on long-term oil prices, saying he would make “a lot of money” if oil prices go up.
“It’s also a bet on the fact that the Permian Basin is what it is cracked up to be,” he told CNBC in an interview on May 6. But “oil prices will determine whether almost any oil stock is a good investment over time.”
Occidental shares closed at $49.75 Thursday, down about 19% year to date. Anadarko rose 58% to $70.53. Chevron shares climbed 12% to $123.11.
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