Bidding War For Anadarko May Signal The Beginning Of Takeovers In Energy

April 24, 5:00 pm EST

Among the big news of the day is the bidding war that is underway for the Permian Basin oil producer Anadarko.  This fits right in with my daily notes of the past two days.

Anadarko received a bid from Chevron two weeks ago for $65 a share.  Today, Occidental Petroleum offered $75 a share for the company.  Prior to the takeover bids, the stock was trading $47.  So, Occidental’s bid is a 60% premium to where Anadarko shares were trading on April 11.

Now we have this chart ….


We’ve talked about the opportunity to see a big comeback in the energy sector.  The S&P energy ETF (XLE) is the only sector ETF with a negative five-year return.

It’s common to see M&A activity ramp up in sectors that have been beaten down and misvalued.  This may be the beginning.

With that in mind, yesterday we drilled into the constituents of the XLE and highlighted the four stocks in the ETF that have been vetted and are owned by big influential activist investors.

What will these activists likely do, in light of this takeover activity?  I suspect they will push to put the companies they own on the selling block.

Let’s revisit the four stocks and the billionaire investor involved in each, and then we’ll take a look at how these companies stack up, relative to Anadarko, in output in the Permian Basin.

Devon Energy (DVN)

Billionaire Paul Singer of Elliott Management is one of the best activist investors in the world.  He has one of the longest tenures in the business, dating back to the 70s.  And he’s had one of the hottest hands on Wall Street over the past few years. Singer’s fund, Elliott Management, owns 4% of Devon.  It’s the eighth biggest long position.  Devon is down 52% over the past five years.

Hess Corp. (HES)

Singer and his team are the fourth largest shareholder in Hess.  They have a 7% stake in Hess.  And it’s a big position in the Elliott portfolio — a top five position representing over 7% of the portfolio.   Hess is down 25% over the past five years.

Pioneer Natural Resources (PXD)

Billionaire Seth Klarman has been called the next Warren Buffett.  His fund, Baupost Group, is the sixth largest shareholder of Pioneer.  Klarman has 5% of his portfolio invested in Pioneer.  Pioneer is down 14% over the past five years.

Diamondback Energy (FANG)

Billionaire Carl Icahn owns 6% of Diamondback.  It’s a half a billion dollar stake in his $20 billion portfolio.  Diamondback is up 46% — and already up 22% from when Icahn entered in the fourth quarter. 

Now, here’s how they look, ranked by annual production in Texas.

With the above in mind, and considering the $38 billion bid for Anadarko, Pioneer is the second largest producer in the state, and has a market cap of $29 billion.  Diamondback is the fourth largest producer in the state, with a market cap of $18 billion.  And Devon Energy is the 15th largest producer in Texas, with a market cap of $15 billion.  Icahn may be sitting on the biggest opportunity stock.

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