Oxy Faces Securities Class Action from Investor Group over Anadarko Deal
Occidental Petroleum Corp. is facing legal action from a group of investors claiming to have lost billions of dollars because the debt-laden firm was not transparent about its inability to survive market volatility after spending US$35.7 billion on its purchase of Anadarko Petroleum Corp. last year.
As per information publicly available, Anadarko shareholders who swapped their stock for Occidental shares, along with certain other investors who subscribed for Occidental bonds that partly funded the acquisition, filed a securities class action suit last week in New York’s State Supreme Court. Occidental’s market capitalization has dropped from nearly US$50 billion before the launch of its bid for Anadarko to about US$1 billion at present.
In August 2019, Occidental completed its acquisition of Anadarko in a corporate transaction valued at approximately US$55.0 billion, including the assumption of Anadarko’s debt. As part of the deal, shareholders of Anadarko were given US$59.00 in cash and 0.2934 shares of Occidental common stock for every Anadarko share held. Occidental also launched a US$24.5 billion bond offering to help fund the merger.
According to media reports, investors stated in the complaint that Occidental should have included information in its stock and bond registration statements about how “quadrupling its debt load to $40 billion would leave it ‘precariously exposed’ to falling oil prices, and undermine its ability to boost shale oil production and its common stock dividend.”
The suing investors have also alleged that Occidental’s issuance of US$10.0 billion of preferred stock to Warren Buffett’s Berkshire Hathaway Inc. further aggravated the company’s debt overhang. According to reports, several senior Occidental executives, including CEO Vicki Hollub, and former CFO Cedric Burgher, have been named in the suit.
Bank of America, Citigroup, JP Morgan, and Wells Fargo, which helped underwrite Occidental’s bond offering, are also being sued for alleged inadequate due diligence.
In March, Occidental announced that it was shrinking its capital spending budget for 2020 by around one-third, whilst also cutting its quarterly dividend for the first time in three decades. The company subsequently announced losses of US$2.2 billion for the first quarter of 2020.
The case is City of Sterling Heights General Employees’ Retirement System et al v Occidental Petroleum Corp et al, New York State Supreme Court, New York County.