What happened?

Anadarko Petroleum rose by more than 11% on Wednesday on the news that Occidental Petroleum offered to acquire the oil company.

Why is it important?

In general

Anadarko Petroleum Corp. has been a big newsmaker during the past few weeks. Earlier it agreed to be bought by Chevron Corp. for $33 billion. Chevron gave $65 cash and stock per share. Now it turns out that there’s a higher bid: Occidental is offering $76 per share in cash and stock. There are now 3 options: Anadarko may stick to its agreement with Chevron, decide to break in favor of Occidental, or Chevron can increase its bid for Anadarko.  

For investors

The bidding war certainly increases the stock’s appeal. The company represents a titbit for oil giants due to its position in the Permian Basin, the largest oil field in North America.

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For Chevron, the purchase of Anadarko represents as well-calculated move as the fields of both companies are near each other, so the deal is convenient from the point of infrastructure and will help to cut costs. The price it negotiated also seems fine. Chevron expects a positive contribution to free cash flow and earnings per share a year after closing the purchase. Finally, Chevron makes a strategic point by showing that it aims to develop at the key oil area.

Occidental Petroleum argues that the positive effect of its acquisition of Anadarko will be greater than that of Chevron. According to the management of Occidental, it will be able to save $3.5 billion, which is $1.5 billion more than Chevron estimates it can extract from the deal.

For traders

Anadarko stock gained more than 60% during the past month on the whole acquisition talk. It’s not surprising that the company’s P/E ratio rose to 45.87: the stock is trading at a premium against its industry’s 4.89. However, as the battle between the buyers continues, Anadarko will likely remain in demand. Resistance is at $73.50 and $75, while support is at $65 and 61.50.  

The weekly chart of Anadarko Petroleum Corp.
Anadarko Petroleum Corp., weekly chart

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