Anadarko Gets $9 Billion Cheaper for Takeover: Real M&A

Anadarko Petroleum Corp.’s legal troubles likely haven’t tarnished its allure for acquirers. Instead, it’s helped make the oil producer $9 billion cheaper.

The stock has erased almost all of this year’s gains as it tumbled 19 percent in less than two months to below $80, in part because of a lawsuit that could result in Anadarko paying as much as $14 billion in damages. While that would draw upon the Woodlands, Texas-based company’s cash, the value of its exploration and production assets remains unshaken at as much as $151 a share, according to analysts’ net asset value estimates compiled by Bloomberg.

With energy takeovers set to pick up next year after falling to the lowest volume since 2004, Anadarko would probably be at the top of the list for multinational oil companies seeking purchases to turn around years of declining production, said Livermore Partners. A buyer willing to shell out $40 billion plus a premium would get a presence in fields where not many major energy companies have exposure -- the Niobrara formation in Colorado, Texas’s Eagle Ford shale basin, and offshore Africa, Mizuho Securities USA Inc. said.

“They are now a much more likely, much more digestible target for a takeover,” Amy Myers Jaffe, executive director of energy and sustainability at the University of California, Davis, said in a phone interview. “Anadarko is a company that’s been discussed on Wall Street for a long time as a company that a larger supermajor could take over.”

Anadarko Assets

John Christiansen, a spokesman at Anadarko, declined to comment on market speculation.

In addition to expanding in deep-water offshore assets in Africa and the Gulf of Mexico, Anadarko has seen surging U.S. output with projects such as Colorado’s Wattenberg field, which includes the Niobrara and Codell formations, and the Eagle Ford shale basin in Texas. The company is targeting compound annual production growth of 5 percent to 7 percent over the next decade, Anadarko reiterated at a conference last week.

“The company has a boatload of high quality assets around the world,” Robert L. Christensen, Jr., a New York-based analyst at Canaccord Genuity Group Inc., said in a phone interview. “There’s tremendous raw material here for an interested party.”

In October 2012, analysts said Anadarko was among potential targets for Exxon Mobil Corp. after OAO Rosneft bought BP Plc’s Russian venture and vaulted past Exxon in terms of production.

A deal for Anadarko never came to fruition as the volume of corporate takeovers in the industry this year fell to $51 billion, the lowest since 2004, and acquirers opted for smaller assets and joint ventures, data compiled by Bloomberg show.

Exxon, Chevron

Multinational oil companies have production deficits that could be offset by making a sizeable acquisition, according to David Neuhauser, managing director of Livermore Partners, an investment firm in Northbrook, Illinois, that focuses on undervalued energy companies.

“Next year and 2015 are going to be years of further consolidation,” Neuhauser said in a phone interview. While some companies will be selling assets, “other companies are trying to get bigger and increase their footprint.”

Exxon, Chevron Corp., BP, Total SA, ConocoPhillips and Royal Dutch Shell Plc all would have an interest in buying Anadarko to gain access to its portfolio of projects around the world, Neuhauser said.

It would be an especially good fit for Exxon, which has a market value of $423 billion, or Chevron, a $228 billion company, as each company is seeking opportunities to boost output, said Fadel Gheit, a New York-based analyst at Oppenheimer Holdings Inc.

Tronox Lawsuit

Representatives for Exxon, Chevron, Shell and BP declined to comment on whether they’re interested in buying Anadarko. Representatives for Total and ConocoPhillips didn’t respond to requests for comment.

The lawsuit would need to be resolved before any buyers could seriously consider a deal, said John Malone, a New York-based analyst at Mizuho Securities.

A judge last week ruled that Anadarko and its Kerr-McGee unit acted improperly in the 2005 spinoff of Tronox Inc. and may have to pay $5 billion to $14 billion related to environmental cleanup and health claims. U.S. Bankruptcy Judge Allan Gropper in Manhattan has yet to decide the amount Anadarko must pay, and Anadarko said it will appeal the ruling.

After Tronox was spun off, Kerr-McGee was later acquired by Anadarko. Burdened by environmental debts, Tronox filed for bankruptcy in 2009 and sued Anadarko and Kerr-McGee.

Asset Value

Since Anadarko peaked this year at $97.76 on Oct. 29, it’s fallen to $79.11 as of yesterday, trimming its year-to-date gain to 6.5 percent. That’s the fourth-worst performance this year in the 18-member Standard & Poor’s 500 Oil & Gas Exploration & Production Index.

Today, Anadarko rose 0.7 percent to $79.65.

At least 20 out of 24 analysts that have updated their recommendations since the court ruling still tell investors to buy the stock, according to data compiled by Bloomberg.

While the potential lawsuit damages could impair Anadarko’s liquidity, it doesn’t change the value of the company’s operations. Canaccord’s Christensen estimates its net asset value to be $151 a share, and Deutsche Bank AG’s Stephen Richardson pegs it at $125.

Should the company have to pay as much as $14 billion in damages, the stock may fall to $68, William Featherston of UBS AG wrote in a Dec. 13 report. The shares could rise to as high as $98 if Anadarko is told to pay only $5 billion, he wrote.

Big Acquisition

“Its net asset value is significantly higher than the stock price,” Gheit of Oppenheimer said in a phone interview. “It’s not that the company does anything wrong or lacks motivation to create shareholder value or is sitting on their hands. It’s one of the best run companies. It’s unfortunate that they got tangled into this mess.”

With an enterprise value of about $51 billion, Anadarko would be the energy industry’s second-biggest corporate takeover in the last decade, data compiled by Bloomberg show.

Most companies can’t afford a takeover bill that high, said Phillips Johnston, a New Orleans-based analyst at Capital One Financial Corp.

“The pool of potential acquirers is relatively small,” he said in a phone interview.

‘Takeover Bait’

If Anadarko faces the maximum penalty in the Tronox lawsuit, the company could raise cash by selling some of its assets, Brian Singer at Goldman Sachs Group Inc. wrote in a Dec. 16 report. Anadarko could put on the block its assets in Brazil and the Marcellus shale basin, both of which may be valued at about $2 billion, or its stakes in various Gulf of Mexico discoveries, the New York-based analyst said.

S&P said yesterday that it may cut Anadarko’s credit rating to junk status if it ends up having to pay more than $9 billion for the Tronox settlement and doesn’t sell off assets. The company is rated BBB-, the lowest level of investment grade.

That said, the lawsuit has made Anadarko cheaper, which could draw buyers, said Ed Hirs, a professor of energy economics at the University of Houston who also runs a small production company in Texas.

“Anadarko is takeover bait now,” Hirs said in a phone interview. “Now that the downside is defined, it’s in play.”

The lawsuit is Tronox Inc. v. Anadarko Petroleum Corp., 09-ap-01198; the bankruptcy is Tronox Inc., 09-bk-10156, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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