Activist investor and Wall Street giant Carl Icahn owns around 3% of oil company Occidental Petroleum and wrote a scathing letter to the company’s management team. At the core of the letter is one key question: was Occidental approached by a potential buyer prior to entering into an agreement to buy Anadarko Petroleum for $37 billion, according to a Bloomberg report.
Critic Of The Deal
Icahn’s opposition to Occidental’s $37 billion M&A deal was well known and publicized. He was especially concerned with the fact the deal wasn’t subject to a shareholder vote and was in part financed with a $10 billion transaction with fellow billionaire Warren Buffett.
He said at the time Buffett received a “gift” in the form of 100,000 shares of preferred stock that pay a sizable dividend of 8% in exchange. By comparison, the stock was paying at the time a 5% dividend.
Icahn stated the transaction is a “poster child” for what is “wrong with corporate governance” as the company could have raised the necessary capital at a much lower cost.
Icahn’s criticism continued in a Wednesday letter in which he stated Occidental’s “ill-advised bet” has since wiped out $30 billion of shareholder wealth, according to a copy of the letter obtained by Bloomberg. Icahn continued that if oil prices continue to tumble, the dividend could be at risk and shareholders will “suffer even more.”
The letter further accused Occidental CEO Vicki Hollub and Chairman Eugene Batchelder of putting their own interest ahead of those of investors. Icahn wrote the Anadarko deal was a “defensive maneuver” which would preserve their job as Occidental was acting as an acquirer, rather than an acquiree.
The structure of the deal also allowed the two most senior executives to get away with not disclosing to the investment community if the company had indeed been approached by an interested buyer.
As such, Icahn’s letter includes what he says is “a very simple question” that management should discuss in its upcoming earnings report. Hollub and Batchelder need to “publicly and clearly” confirm or deny if Occidental was approached as a possible acquisition target.
Icahn’s letter further suggests at the very least the two executives are “hiding something important.”
“If we are right, which we believe we are, these actions are unconscionable under any measure,” the letter stated. If there was ever an appropriate time for a CEO and its board of directors to be held accountable, that time is certainly now.