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Anadarko to Buy 2 Energy Rivals

June 24, 2006|From Reuters

U.S. oil and natural gas producer Anadarko Petroleum Corp. said Friday that it had agreed to buy smaller rivals Kerr-McGee Corp. and Western Gas Resources Inc. for more than $21 billion in cash to expand operations in the Gulf of Mexico and Rocky Mountains region.

The deals, both at large premiums to the share prices of the target companies, are the latest blockbuster acquisitions in the red-hot energy sector, which is enjoying a windfall as oil and natural gas prices stay at stubbornly high levels.

Mid-tier companies that focus on oil exploration and production, in particular, have become attractive takeover targets as oil prices hover around $70 a barrel.

Anadarko was among the worst-performing stocks in the energy sector just a few years ago before turning itself around.

Anadarko, based in the Woodlands, Texas, will acquire Kerr-McGee for $16.4 billion, or $70.50 a share -- a 40% premium to Kerr-McGee's closing stock price of $50.30 on Thursday.

Oklahoma City-based Kerr-McGee, which had been under pressure from billionaire investor Carl Icahn to boost its stock price by selling futures contracts and buying back shares, has a strong presence in Colorado, Utah and the deep waters of the Gulf of Mexico.

Although smaller, Anadarko's separate deal to acquire Denver-based Western Gas for $4.7 billion, or $61 a share, is even richer, offering a 49% premium to the company's closing price Thursday.

Most of Western Gas' operations are in Wyoming.

The transactions boost Anadarko's position among the biggest North American independent oil and gas producers, although the company remains much smaller than the top U.S. oil producers such as Exxon Mobil Corp. and Chevron Corp.

Analysts said the deal appeared expensive, but the assets acquired seemed to complement Anadarko's existing portfolio and would allow it to become a U.S. natural gas powerhouse.

"Long term, the natural gas situation in the United States will likely remain tight and prices will remain fairly high, and that is probably the biggest justification for Anadarko being able to make this purchase," said Evan Smith, fund manager at U.S. Global Investors in San Antonio.

Shares of Anadarko dropped $3.49, or 7.2%, on Friday to $44.90, while Kerr-McGee soared $18.31, or 36.4%, to $68.61. Western Gas leaped $18.76, or 45.9%, to $59.67.

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