Occidental Petroleum (NYSE: OXY) made a huge bet acquiring Anadarko Petroleum (NYSE:APC) in a major deal that saw it outbid Chevron (NYSE: CVX), a much bigger competitor.
However, Occidental’s stock price did not reflect the victory as it has dropped about 20% since rumors emerged that it would submit a hostile offer that would beat Chevron’s.
Although shareholders have witnessed the erosion of $8.1 billion in the total value of Occidental’s outstanding shares, they have benefited from a spike in the dividend yield on their shares.
Occidental shares currently yield 6.1%, which is 2.5% higher than the industry average, but the oil company is not very attractive given that it took a $10 billion loan from Berkshire Hathaway to fund the Anadarko acquisition.
The oil major now has to integrate Anadarko’s global portfolio into its current assets, which is not an easy task as it will involve a substantial number of disposals.
It is not yet clear when the acquisition will become accretive, but this will definitely take a while given the complexity of the disposal process and Occidental’s debt-laden balance sheet.