Occidental Petroleum, (NYSE: OXY), lit up the Permian sky, with its mid-April announcement that it was going to call and raise Chevron’s (NYSE:CVX) bid for Anadarko Petroleum, (NYSE: APC).
Almost immediately two things began to happen. First, the stocks of both companies sank, big. They kept sinking proportionately until the news broke at the end of April that OXY Gulfstream jet had been spotted in Omaha, where the CEO, Vicki Hollub had paid a visit to the Oracle. Ms. Hollub must have made a convincing pitch, as she came away with a big $10 bn financial commitment. Chevron stock immediately reversed course, with a 5 percent gain, attenuating this substantially though as the market fretted it would meet and raise OXY. As we now know that didn’t happen, and CVX has resumed its upward march.
Not so OXY, the victor in this contest. OXY has just been pummeled by the market for its victory. You will note that Occidental stock has lost a staggering 22 percent of its value since the rumor mill first began to churn in early April. What gives? Why is the market so sour on a merger that so soundly achieves one of the premiere tenets of standardization, scale and the efficiencies that come with it?
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In this article, we will focus on one of the primary aspects of the OXY/APC deal that haven’t been properly considered by the market. OXY is going to do more with the assets held by Anadarko, and that will create value for…