Carl Icahn Threatens Board Fight in Challenging Occidental's Acquisition of Competitor
The lawsuit, filed in Delaware Chancery Court, came just weeks after Houston-based Occidental outbid Chevron Corp. for the right to buy Anadarko for $57 billion in a merger of two Texas oil-and-gas exploration giants.
May 30, 2019 at 02:25 PM
4 minute read
Activist investor Carl Icahn, mulling a potential board fight, on Thursday sued Occidental Petroleum Corp. for records related to the oil-and-gas firm's “bet-the-company” deal earlier this month to acquire Anadarko Petroleum Corp. in what he said was a “fundamentally misguided and hugely overpriced” transaction.
The lawsuit, filed in Delaware Chancery Court, came just weeks after Houston-based Occidental outbid Chevron Corp. for the right to buy Anadarko—based in The Woodlands, Texas—for $57 billion in a merger of two Texas oil-and-gas exploration giants.
The debt-fueled deal, Icahn said, required Occidental to shed Anadarko's African assets and sell $10 billion of preferred company stock to Berkshire Hathaway Inc. at an “extremely low price” in order to avoid a stockholder vote.
Icahn, who owns more than $1.6 billion in Occidental stock through three related entities, said the company instead should have considered putting itself up for sale and threatened to force a special meeting of investors to potentially elect a new slate of directors “to ensure that Ocidental is being run in the interests of its stockholders going forward.”
In a statement Thursday, Occidental said it would respond to the lawsuit “in due course,” and defended the deal as a way to maximize long-term value for its shareholders.
“Our acquisition of Anadarko will create a global energy leader with a highly complementary asset portfolio and a unique opportunity to deliver compelling value and returns to the shareholders of both companies, including significant cost and capital allocation synergies and near-term cash flow accretion,” the company statement said. “We look forward to completing the transaction in the coming months.”
According to the complaint, Occidental won its bidding war with Chevron, despite being just one-sixth its size. The filing cited a May 10 Wall Street Journal article, in which Chevron CEO Michael Wirth said that his company could have topped Occidental's bid but refused to do so out of concern for “costs and capital discipline.”
“An increased offer would have eroded value to our shareholders and it would have diminished our returns on capital,” Wirth told The Journal.
Icahn said that the same was true for Occidental, but the board instead chose to take the opposite approach, pursuing a “growth-at-all-costs” strategy that drove up the firm's debt, rather than trying to responsible maximize stockholder value.
“A board of directors giving priority to stockholder value would not have approved the company's very high topping bid for Anadarko because most of that price will be paid for with debt (and debt-like preferred stock), thus putting the company at risk in case oil prices fall in the near to intermediate future,” the complaint said.
According to the complaint, the Icahn entities delivered the books-and-records demand to the Occidental board May 21. The complaint said the company responded Tuesday that it was considering the request but has yet to follow up.
According to the complaint, the plaintiffs are seeking company records related to the preferred stock sale to Berkshire Hathaway, the sale of Anadarko's African assets, and whether the board had considered selling the company, rather than pursuing the Anadarko transaction.
They said that they reserved the right to sue based on the documents, but favored “fixing the problem” out of court.
The plaintiffs, High River Limited partnership, Icahn Partners Master Fund and Icahn Partners LP, are represented by Stephen E. Jenkins and Richard Heins of Ashby & Geddes in Wilmington.
An online docket-tracking service, did not list counsel for Occidental.
The case, captioned High River Limited Partnership v. Occidental Petroleum, has not yet been assigned to a judge.
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