Activist investor Carl Icahn has filed suit against Occidental Petroleum Corp., claiming its "fundamentally misguided and hugely overpriced acquisition" of Anadarko Petroleum Corp. has destroyed shareholder value.
In the suit, filed in Delaware Chancery Court by three venture capital firms he controls, Icahn said he may request a special meeting in an effort to remove current members of the board of directors. The three firms — High River LP (Separately Managed Account, PE/VC), Icahn Partners Master Fund LP and Icahn Partners LP — hold a combined $1.6 billion stake in Occidental. The lawsuit requests the court to force Occidental to open its files on the Anadarko deal to Icahn and other investors in order for them to determine whether additional action to block the purchase is required.
While Icahn was silent in the days leading up to Anadarko's acceptance of Occidental's offer, the displeasure of other major shareholders put CEO Vicki Hollub on the immediate defensive. Entering the fray with the May 30 filing, Icahn pulled no punches in his assessment of the deal and Occidental's leadership.
Calling the $57 billion sum offered for Anadarko "sky high," Icahn praised Chevron Corp.'s decision not to match Occidental's offer and take the $1 billion breakup fee instead. The activist investor added that if Occidental had cared about their shareholders, they would have taken a similar approach.
"They decided to go for growth-at-all-costs at the price of ballooning the Company's debt burden, rather than trying to maximize stockholder value prudently," the suit said. "A board of directors giving priority to stockholder value would not have approved the Company's very high topping bid for Anadarko because most of that price will be paid for with debt."
Icahn slammed the deal Hollub and Occidental made with Warren Buffett's Berkshire Hathaway Inc., which helped fund the Anadarko acquisition, as "extraordinarily and unnecessarily expensive." Berkshire Hathaway received $10 billion of preferred stock at a dividend rate of 8% per year in exchange for $10 billion in cash, terms Icahn objects to.
"The financing … on extremely disadvantageous terms, the presale of Anadarko's African assets to [TOTAL SA], in what appears to have been a one-bidder auction that is now in doubt, raises very real questions about the competence, and fidelity to the stockholders, of Occidental's management and the board," the suit states.
Icahn claims in the suit that Occidental's move to block a shareholder vote on the acquisition was proof the company's leadership was afraid the deal would be rejected by investors.
"Management appears to find the idea of a stockholder vote objectionable. Yet, the Anadarko deal is a classic 'transformative' (a word that should send shudders through stockholders everywhere) bet-the-company deal, which is exactly the type of deal that management should present to the stockholders for approval," the suit says.
If Occidental had truly been interested in maximizing shareholder value, Icahn said, its leadership would have taken a course completely opposed to the one they decided on.
"Occidental should never have tried pursuing Anadarko and instead should have put itself up for sale," the plaintiffs said.
Occidental shares were down slightly in early afternoon trading to a decade low of $51.86.