Anadarko and Occidental to Enter Merger Talks Despite Chevron's Merger Agreement

Anadarko announced on Monday that it will enter merger talks with Occidental Petroleum (OXY).

The news comes as Occidental made a hostile takeover offer for Anadarko with a cash-and-stock bid value of nearly $57 billion. Oil giant Chevron’s bid valued the company 20% less. The bidding war for Anadarko reflects the intense desire for oil companies to acquire the best shale assets in America.

Anadarko and Occidental had been in merger talks prior to Chevron’s takeover deal. Acquiring Anadarko's Permian assets would lift Occidental's output in that shale oilfield to 533,000 barrels per day, further solidifying their spot as the number one producer in the Permian. The combined company would be worth about $100 billion and produce about 1.4 million barrels of oil per day.

"We believe our signed agreement with Anadarko provides the best value and the most certainty to Anadarko's shareholders," Chevron said on Monday.

Anadarko cautioned that there "can be no assurance" that talks with Occidental will result in a better deal than the one already reached with Chevron.

Despite the new negotiations with Occidental, Anadarko said the Chevron merger agreement remains in effect. The Anadarko board reaffirmed its recommendation in favor of the Chevron deal "at this time."

Chevron certainly has the firepower to increase its bid. But Chevron must also guard against overpaying for Anadarko.

If Anadarko goes with Occidental, Chevron won't be left empty-handed. Under the terms of their merger agreement, Anadarko would owe Chevron a break-up fee of $1 billion if it reaches a takeover deal with another company.