Advice on a stock I own: APC (Anadarko Petroleum)

FireFoley

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So every now and then I get lucky and a prediction I make comes true. CVX just announced they will not raise their offer for APC nor counter, and just accept the ONE billion dollar break up fee and walk away. Meanwhile OXY now has to pay Buffett 800 MILLION a year in dividends, when they could have raised that 10 Billion at probably 4% interest. Anyway I expect CVX to return in a few years a snap up the combined company.
 

FireFoley

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It appears that others have decided that the $800 Million that will go to Buffett annually just to help get this deal done is just too big of an albatross. OXY's stock is trading below $55 and is down roughly 20% in a month. Does not mean this deal will not eventually work out. but I have to think that the OXY shareholders did not anticipate this much of a drop in the company's pursuit of APC
 

FireFoley

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Just b/c it made for good banter for a bit, thought I would update the OXY-APC- not CVX deal. Clearly the market is giving a thumbs down to OXY and that $800 million annual dividend payment to BRK. OXY's stock has dipped below 53 and does pay a juicy yield for a common stock but I am hesitant to wade into that pool. There will be a time and place, but I am going to remain on the sidelines for now. Any thoughts otherwise?
 

GatorInGeorgia

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Just b/c it made for good banter for a bit, thought I would update the OXY-APC- not CVX deal. Clearly the market is giving a thumbs down to OXY and that $800 million annual dividend payment to BRK. OXY's stock has dipped below 53 and does pay a juicy yield for a common stock but I am hesitant to wade into that pool. There will be a time and place, but I am going to remain on the sidelines for now. Any thoughts otherwise?

No, I’d stay on the sidelines too. So you were correct on CVX not coming back in and I was wrong as I thought CVX would increase their bid. Update on my end is I sold all of my APC for about $73 per share. I could have dumped it in the high $75 area had I sold before CVX announced they weren’t going to counter so I left a few bucks on the table but it was worth it to me as I felt a counteroffer of $82ish was realistic. Nonetheless I made out well so I’m happy. I think you’ll have a chance to buy OXY in the high $40s (maybe even mid $40s) so if you like it and the nice yield it offers maybe give it a few weeks. I think oil might be pulling back some more in the near future. Maybe also look at some other beaten down E&P names if you want to stay in the energy sector. There are plenty to choose from.
 
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GatorInGeorgia

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No, I’d stay on the sidelines too. So you were correct on CVX not coming back in and I was wrong as I thought CVX would increase their bid. Update on my end is I sold all of my APC for about $73 per share. I could have dumped it in the high $75 area had I sold before CVX announced they weren’t going to counter so I left a few bucks on the table but it was worth it to me as I felt a counteroffer of $82ish was realistic. Nonetheless I made out well so I’m happy. I think you’ll have a chance to buy OXY in the high $40s (maybe even mid $40s) so if you like it and the nice yield it offers maybe give it a few weeks. I think oil might be pulling back some more in the near future. Maybe also look at some other beaten down E&P names if you want to stay in the energy sector. There are plenty to choose from.

So as I mentioned above, OXY in the high 40s happened today. If you’re feeling frisky and like the yield jump on board. Personally I’m getting interested in OXY but I am going to wait as I think there is more downside risk to the broader market.

Interesting thought, though. As you may have heard, Carl Ichan has taken a stake in Oxy and he’s suing over the purchase of APC. Maybe it’s just an effort to greenmail Oxy and so they pay him to go away. However, what if he is successful in scuttling the deal. As the market hammered Oxy when they “won” the deal, logic would dictate the market would bid Oxy shares up if they “lose” the deal. How much upside from $49.77 is there if this happens? $62 per share for Oxy fairly quickly doesn’t seem to far fetched, assuming the broad market stops hemorrhaging. Thoughts?
 

FireFoley

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okay, OXY is now below $50 a share and Carl Icahn is suing to try and defend his 1Billion dollar plus position in the name. That lawsuit is going no where but it is clear that the market hates the deal especially due to how they financed it. Is it time to step in or is that Buffett albatross still to big of a hurdle to tackle?
 

BMF

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So as I mentioned above, OXY in the high 40s happened today. If you’re feeling frisky and like the yield jump on board. Personally I’m getting interested in OXY but I am going to wait as I think there is more downside risk to the broader market.

Interesting thought, though. As you may have heard, Carl Ichan has taken a stake in Oxy and he’s suing over the purchase of APC. Maybe it’s just an effort to greenmail Oxy and so they pay him to go away. However, what if he is successful in scuttling the deal. As the market hammered Oxy when they “won” the deal, logic would dictate the market would bid Oxy shares up if they “lose” the deal. How much upside from $49.77 is there if this happens? $62 per share for Oxy fairly quickly doesn’t seem to far fetched, assuming the broad market stops hemorrhaging. Thoughts?

I'm following OXY, but not sure I want to put any money in the market right now. I'm sitting on $30K or so in my brokerage that's doing nothing right now.
 

FireFoley

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OXY trades sub 47 today. Yes I know that oil is in a bear market and all the stocks are getting hit, but this thing has retreated almost 33% in 2 months. Yes I know they WAY WAY WAY overpaid for APC, but this is starting to get interesting. I predicted CVX would come in in 2 or so years and buy the combined company, but how about this. That 8% preferred stock on 10 Billion that Berkshire has is clearly a sticking point, but my question is it callable? If so, CVX could sniff around sooner rather than later with these depressed oil prices, which hamstrings OXY even more. CVX and its war chest could open its petty cash box, call those preferreds from Berkshire (if callable) and then write a check to OXY for the combined company. I don;t dismiss my crazy notion as long as oil keeps getting drilled, no pun intended. :lmao2:
 

GatorInGeorgia

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OXY trades sub 47 today. Yes I know that oil is in a bear market and all the stocks are getting hit, but this thing has retreated almost 33% in 2 months. Yes I know they WAY WAY WAY overpaid for APC, but this is starting to get interesting. I predicted CVX would come in in 2 or so years and buy the combined company, but how about this. That 8% preferred stock on 10 Billion that Berkshire has is clearly a sticking point, but my question is it callable? If so, CVX could sniff around sooner rather than later with these depressed oil prices, which hamstrings OXY even more. CVX and its war chest could open its petty cash box, call those preferreds from Berkshire (if callable) and then write a check to OXY for the combined company. I don;t dismiss my crazy notion as long as oil keeps getting drilled, no pun intended. :lmao2:

My call on Oxy’s share price falling to the 40s was a good one.

I don’t believe the preferreds would be callable, my belief that Buffett is too shrewd to agree to that. If they were callable, Oxy could call the preferreds themself after they sell off $10-$15 billion of APC’s assets. Africa & LNG assets alone will bring in almost $9B. It is also my understanding (although I could be wrong on this point) that the 8% dividend goes for 10 years and not in perpetuity.

Regarding CVX’s war chest, they have about $11B in cash/short term investments & approximately $34B in total current assets. Buffet has about $112 BILLION cash (that’s not a typo) and $166 BILLION in current assets. If CVX is a 15 foot, 2,000 pound great white shark then Buffet is 25 foot, 12,000 pound orca whale. CVX isn’t pushing Buffet around anytime soon.

I am getting interested in Oxy at these levels. I think it’s possible that the lawsuit Ichan has filed could throw a wrench in the plans.
 

FireFoley

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Some very good points GiG, but I misspoke a bit when I wondered if the preferred Buffett bought is callable? In my scenario it will not matter b/c say CVX did come in and buy the combined company, it could choose to take on the debt or retire parts of it. I would suspect that Buffett's preferred would be paid off. No company is going to pay double what they could have funded that amount for. Either way. if oil continues to fall it will be interesting to watch.
 

GatorInGeorgia

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Some very good points GiG, but I misspoke a bit when I wondered if the preferred Buffett bought is callable? In my scenario it will not matter b/c say CVX did come in and buy the combined company, it could choose to take on the debt or retire parts of it. I would suspect that Buffett's preferred would be paid off. No company is going to pay double what they could have funded that amount for. Either way. if oil continues to fall it will be interesting to watch.

I hear what you’re saying but if CVX bought the combined entity my belief is they would do so knowing they have to abide by the terms and conditions of all Oxy/APC contracts, including the terms and conditions of the outstanding debt. If Buffet did have a provision in place that the preferreds can’t be paid off or called (my guess) then CVX would just have to live with that arrangement if they moved forward with the acquisition, unless they could get Buffet to agree to some new deal. I’m not positive this is the case but that’s my guess. Regarding the oil market, things are looking shaky right now for those bullish on oil, IMO. Interesting times, indeed.
 

GatorInGeorgia

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I bought a few shares of MRO (Marathon Oil). Gonna see what happens....

That’s one of my holdings. I think you’re getting in at a very good price if you have 3-5 years to hold it. I wouldn’t be surprised to see them get bought out much sooner than that. If oil really rolls over obviously there is downside but long term I think you’ll make out well.
 

BMF

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That’s one of my holdings. I think you’re getting in at a very good price if you have 3-5 years to hold it. I wouldn’t be surprised to see them get bought out much sooner than that. If oil really rolls over obviously there is downside but long term I think you’ll make out well.

Thanks GiG. I'm planning to hold onto it, which is what I did w/ APC. It pays dividends, so hopefully it'll be a solid buy.
 

FireFoley

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I bought a few shares of MRO (Marathon Oil). Gonna see what happens....

Good luck with MRO. Not one of my faves in the space so I passed on it. In the Marathon family, I like Marathon Pete (MPC) better. I think it has a broader array of business and is currently cheaper, although I do think MRO could possibly be a takeout target. let's be honest, regardless of what space you are in in the oil patch, price is going to dictate. And right now there is no catalyst for higher oil prices. Hell OPEC can talk about cuts, that is useless rhetoric as OPEC is no longer needed by the USA. OPEC (well really Saudi Arabia) has one last reason to get a huge spike in oil price. They desperately want to take Saudi Aramco public. It is far and away the largest oil company in the world and perhaps the largest company. they missed their previous two windows to bring that thing to market and are now shooting for 2021.
 

FireFoley

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I just wanted to add a few quotes that Carl Icahn wrote in a letter today in his challenge to the OXY-APC deal. We have talked about it and knew it was a joke but I love "Uncle" Carl's style:

Buffett figuratively took her to the cleaners,” Icahn said in a letter to shareholders Monday. “The Buffett deal was like taking candy from a baby and amazingly she even thanked him publicly for it!”

But you can’t blame Warren, if Hollub was arrogant enough to negotiate a deal with Buffett of this magnitude despite her admittedly limited experience in M&A and the Board was misguided enough to rubber stamp it, then one might say in Warren’s defense that it was almost his fiduciary duty to Berkshire Hathaway to accept it,” Icahn added
 

FireFoley

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I hate to beat a:deadhorse::deadhorse::deadhorse::deadhorse::deadhorse::deadhorse::deadhorse: but OXY is trading below 47 today on news that they are issuing an additional 11 to 13 Billion in 30 yr. Corporate debt to help fund the acquisition of APC. The talked about rate is 2,7% above treasurys, so if you take yhe 30yr T-Bond which is the highest yielding currently just below 2.3%, you get 5% give or take. Thus is on top of the 8%, 10 BILLION in preferred stock that Buffett has. I told you they could float paper at about half what Buffett got, so I assume both Buffett and CVX are rubbing themselves silly. Perhaps my prediction will come to fruition sooner than I expected as oil prices continue to drop and funding this deal will be more difficult, in that CVX will buy the combined company.
 

FireFoley

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Okay the deal has officially closed so I won;t make another post unless something newsworthy occurs, but I leave you with this. The 13 Billion that that OXY is floating to help fund the purchase was FIVE times, I repeat FIVE (5) times over subscribed. The rate is roughly 5% give or take. Well they could have sold 60 Billion at that rate and never needed that 10 Billion at 8% from Buffett. I stand by my prediction that this will end poorly for OXY and CVX will eventually get it all. And while the saga goes on, Buffett will bathe in his $800 Million dividend receipts annually!
 

GatorInGeorgia

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Okay the deal has officially closed so I won;t make another post unless something newsworthy occurs, but I leave you with this. The 13 Billion that that OXY is floating to help fund the purchase was FIVE times, I repeat FIVE (5) times over subscribed. The rate is roughly 5% give or take. Well they could have sold 60 Billion at that rate and never needed that 10 Billion at 8% from Buffett. I stand by my prediction that this will end poorly for OXY and CVX will eventually get it all. And while the saga goes on, Buffett will bathe in his $800 Million dividend receipts annually!

Maybe so but as for me, I don't care what happens from this point forward. I sold out of APC (which was my original intent all along...I was never going to take the conversion deal upon close of transaction) a few months ago shortly after CVX announced they would not be raising their offer. I got out somewhere around the $73 to $74 range so I was a happy camper.

As a matter of fact, I may actually still care what happens to OXY from this point forward because if you're correct and their stock craters that much, I most likely would buy it and try to get paid twice on this thing.
 

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