Why Chevron Stock Is Slumping Today

What happened

Chevron (NYSE: CVX) stunned the oil market on Friday by agreeing to acquire Anadarko Petroleum (NYSE: APC) for a staggering $50 billion. The oil giant offered an enormous 38.9% premium for Anadarko, which sent shares of both companies in opposite directions. Chevron's stock was down about 5% by 12:45 p.m. EDT while Anadarko's skyrocketed 33%.

So what

Chevron will pay $65 per share for Anadarko, including 0.3869 of its shares and $16.25 in cash, for a total of $33 billion. Add in the assumption of Anadarko's $16 billion in debt, and the deal value rises to about $50 billion. That makes it the 11th-largest deal ever in the energy and power markets.

$20 bills and a calculator superimposed over an oil pump.

Image source: Getty Images.

Chevron is buying Anadarko to strengthen its position in U.S. onshore shale plays, the Gulf of Mexico, and liquified natural gas (LNG). The acquisition will make Chevron one of the largest acreage holders and producers in the Permian Basin. It will also enable the company to leverage its LNG expertise in Australia to develop Anadarko's world-class gas resource in Mozambique.

In addition to the strong strategic fit, Chevron anticipates several other benefits. It estimates that the combined company can drive out $1 billion in annual costs. Further, Chevron believes it can save $1 billion in annual capital costs through more efficient development activities in places like the Permian. The oil giant also expects to streamline its portfolio by selling between $15 billion and $20 billion of assets. The company would use that cash to repay debt and return more money to shareholders. That includes boosting its share buyback program from $4 billion to $5 billion per year.

Now what

The deal makes lots of strategic sense from Chevron's perspective. However, it wasn't the only bidder, as Occidental Petroleum reportedly offered more than $70 a share -- so it's possible there could still be a bidding war for Anadarko. If that were to happen, shares of Chevron could slide even further if it needs to pay more for its desired target.

10 stocks we like better than Chevron
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Chevron wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of March 1, 2019

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story


Latest Markets Videos

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More