Occidental has the edge in potential Anadarko merger

BY Richard Summerfield

A merger between Anadarko Petroleum Corporation and Occidental Petroleum Corporation is inching closer as Anadarko announced that Occidental’s revised $38bn offer for the company constitutes a “superior proposal” to the company’s previously announced deal with Chevron Corporation.

Under the terms of the revised Occidental proposal, the company would acquire Anadarko for $76 per share, comprised of $59 in cash and 0.2934 of a share of Occidental common stock per share of Anadarko common stock. The revised Occidental offer represents a premium of approximately 23.3 percent to the $61.62 per share value of Chevron’s pending offer.

Occidental’s offer would also remove a requirement for any deal to receive the approval of Occidental’s shareholders. The cash element of Occidental’s bid has increased $18.8bn, a move which allows the company to avoid a vote by its shareholders on the deal. Some of the Occidental’s investors are opposed to the decision to bypass a shareholder vote of approval, however.

Chevron’s previously agreed merger, which was worth $33bn, is now in jeopardy. The company has until 10 May to revamp its own offer, or walk away from the deal. Chevron’s merger agreement with Anadarko is structured as 75 percent stock and 25 percent cash. Chevron has previously noted that it is not likely to engage in a bidding war for Anadarko, however. If Anadarko terminates the Chevron merger agreement, which it indicated it will do in a statement released on Monday, in order to enter into a definitive agreement with Occidental, Anadarko will pay Chevron a $1bn termination fee.

The decision is a victory for Occidental chief executive Vicki Hollub, who pressed Anadarko’s board to reject the Chevron agreement and pulled in support from billionaire Warren Buffett for the deal. Mr Buffett’s Berkshire Hathaway has pledged to invest $10bn into the deal.

“We firmly believe that Occidental is uniquely positioned to drive significant value and growth from Anadarko’s highly complementary asset portfolio,” said Ms Hollub. “This combination will create a global energy leader with the scale and geographic diversification to drive compelling returns to the shareholders of both companies. The financial support of Berkshire Hathaway as well as the agreement we announced with Total allows us to delever our balance sheet while focusing our integration efforts on the assets that will provide the most value for us.”

The battle for control of Anadarko has gone on for some time. In April, the company rebuffed an offer from Occidental and chose to favour Chevron’s lower bid.

News: Anadarko backs Occidental's revised bid, pressuring Chevron to respond

Frequency of cyber attacks increases amid defence deficit

BY Richard Summerfield

The number of cyber attacks, and the cost of those attacks, increased markedly in 2018, according to a study commissioned by insurer Hiscox.

The Hiscox Cyber Readiness Report 2019 surveyed nearly 5400 professionals from the US, UK, Germany, Belgium, France, Spain and the Netherlands who are responsible for their company’s cyber security.

According to the report, 61 percent of the firms surveyed experienced one or more cyber attacks in the past year, compared to 45 percent in the previous year. However, the proportion of those firms achieving top scores for their cyber security readiness fell year-on-year. The median cost for losses associated with cyber incidents increased significantly, from $229,000 to $369,000.

The report, now in its third year of publication, noted that while hackers previously focused mainly on larger companies, small- and medium-sized firms are now equally vulnerable. Around 47 percent of small firms – companies with less than 50 employees – reported attacks, up from 33 percent last year. Sixty-three percent of medium-sized businesses, those with 50 to 249 employees, were targeted, up from 36 percent the previous year.

“The cyber threat has become the unavoidable cost of doing business today,” said Gareth Wharton, cyber chief executive at Hiscox. “The one positive is that we see more firms taking a structured approach to the problem, with a defined role for managing cyber strategy and an increased readiness to transfer the risk to an insurer by way of a standalone cyber insurance policy.”

“The message that cyber risk is a real threat to businesses of all sizes is sinking in,” said Meghan Hannes, cyber product head for Hiscox in the US. “Companies are increasingly aware of the risks and pouring more resources into cyber protection, and yet, there is still a tremendous gap between awareness of the issue and actually having an effective defence. Many believe that increasing cyber-related spending fully protects a business, but it isn’t enough. Businesses must take a holistic approach, ensuring they can properly maximise their investment with appropriate internal protocols, staffing, and employee training, ultimately creating a human firewall as the first line of defence.”

The average spend on cyber security is now $1.45m, up 24 percent on the previous year, and the pace of spending is accelerating. The total spend by the firms in the survey comes to $7.9bn. Two-thirds of respondents (67 percent of firms) plan to increase their cyber security budgets by 5 percent or more in the year ahead.

Report: The Hiscox Cyber Readiness Report 2019

UK consumer confidence climbs but caution remains, says new report

BY Fraser Tennant

A more positive economic landscape is helping to boost consumer confidence in the UK, according to a new report by Deloitte.

In its ‘Consumer Tracker Q1 2019’ report – based on the response of over 3000 consumers in the UK – Deloitte reveals that its UK consumer confidence index in Q1 rose 1 percentage point, to -8 percent, driven by greater optimism about personal finances.

Indeed, Deloitte notes that confidence in levels of disposable income and sentiment about levels of debt grew by 5 and 4 percentage points respectively in Q1 2019.

That said, Deloitte’s overall consumer confidence index remains close to a one-and-a-half year low, which suggests that it will not only take longer for positive economic news to restore consumer confidence to previous levels, but could also require greater certainty around how and when the UK leaves the EU.

“The bounce in consumer sentiment comes against a backdrop of heightened uncertainty around Brexit during the survey period in late March,” said Ian Stewart, chief economist at Deloitte. “Consumers also faced headwinds from a slowing global economy while at home housing activity has softened and consumer credit is less easy to come by. Despite the deluge of bad news consumer confidence has held up, fuelled by rising real incomes, a buoyant jobs market and ultra-low mortgage costs.

“Earnings growth has now outstripped inflation for 13 consecutive months, while unemployment is at its lowest level since 1975. Mortgage rates remain close to all-time lows,” he continues. “The key question for the UK consumer is whether growing corporate nervousness will trigger a squeeze on pay and jobs in the second half of the year.”

Overall UK consumer confidence is calculated by Deloitte as an aggregate of six individual measures: job security, job opportunities, household disposable income, level of debt, children’s education and welfare, and general health and wellbeing.

Ben Perkins, head of consumer research at Deloitte, concluded: “Brexit remains on the horizon and only when this uncertainty lifts will we be able to judge the underlying strength of the consumer market. Meanwhile, consumers continue to rebuild their finances, reflected in a slowdown in borrowing and an increase in savings.”

Report: Deloitte Consumer Tracker Q1 2019

CCOs need to enhance ethics and compliance capabilities, says new report

BY Fraser Tennant

Ethics and compliance are the key areas in which chief compliance officers (CCOs) need to improve, according to a new report by KPMG.

In its ‘2019 CCO Survey: Insights for the future of ethics & compliance’ – based on a survey of 220 CCOs representing the largest organisations in various industries – KPMG notes that while most organisations take ethics and compliance risks seriously, the functions need to work on achieving a “trusted advisor” relationship with business front lines.

The report also identifies the top five areas where CCOs plan enhancements to their enterprise-wide ethics and compliance activities: investigations (65 percent), monitoring and testing (65 percent), data analytics (32 percent), regulatory change management (32 percent), and reporting and data visualisation (32 percent).

“There is a growing consensus across all industries regarding the key areas organisations need to focus on and enhance, not only in ethics and investigations but also on the maturity of ethics and compliance programmes,” said Amy Matsuo, KPMG principal and regulatory insights national leader.

“This is likely driven not only by a commonality of risks but also converging business models.”

Despite this, the report found that board of director engagement in ethics and compliance oversight and supervision is strong, and business line accountability for ethics and compliance is well-established. 

In order to improve their ethics and compliance functions, KPMG suggest that organisations: (i) revamp investigations processes, case management, reporting and communication; (ii) embed accountability via ethics and compliance-driven employee metrics; (ii) continue to drive integrated governance and reporting across ethics and compliance, legal and HR departments; (iv) evaluate available data and the integrity of that data for use in predictive analytics enterprise-wide; (v) establish guardrails and new risk processes for evolving business digitalisation, data analytics and automation; and (vi) invest in technology to drive greater data access.

“Increased public awareness and regulatory focus – along with market pressures for greater agility and real-time responsiveness to identify misconduct – are driving organisations to improve their investigations function,” continues Ms Matsuo. “Integrating investigation activities more closely with ethics and compliance risk management by enhancing investigation reporting and investing in new technology, such as AI, can help to consistently identify and analyse root causes and trends and improve the production of investigation resolutions.”

Report: KPMG’s 2019 CCO Survey: Insights for the future of ethics & compliance

ConocoPhillips sells North Sea assets

BY Richard Summerfield

ConocoPhillips, has agreed to sell two UK subsidiaries to Chrysaor Holdings Limited for $2.7bn.

The assets being acquired produced approximately 72,000 BOE in 2018. This acquisition increases Chrysaor's pro forma 2018 production to 177,000 BOE, making it one of the largest oil and gas producers in the UK North Sea. The deal is expected to close in the second half of 2019, subject to regulatory approval and other closing conditions.

“We are extremely proud of the legacy we’ve built in the UK over the last 50 years and are pleased that Chrysaor recognises the value of this business,” said Ryan Lance, chairman and chief executive of ConocoPhillips. “This disposition is part of our ongoing effort to hone our portfolio and focus our investments across future low cost of supply opportunities.”

 “We are excited to play a role in the natural evolution of the North Sea and to enable the safe transfer of assets from major oil companies such as ConocoPhillips to new, well‐funded, privately‐owned operators,” said Linda Z. Cook, chairman of Chrysaor. “This process results in a good deal for both the seller and the buyer, with new asset owners such as Chrysaor bringing the strategy and capital required for reinvestment and growth. The outcome is a reinvigorated oil and gas sector, an extension of the producing life of existing fields and the maximisation of hydrocarbon resource recovery.”

The deal is the latest in a number of transactions which are reshaping the North Sea oil space. Chrysaor, which is backed by private equity firm EIG Global Partners, is already one of the biggest players in the region after acquiring assets from Royal Dutch Shell for $3.8bn in 2017. Chrysaor will fund the deal through existing cash resources and a debt facility underwritten by several banks – including the Bank of Montreal, BNP Paribas, DNB Bank and ING Bank. ConocoPhillips expects to use the proceeds from the sale for general corporate purposes.

News: Conoco sells UK North Sea oil assets to Chrysaor for $2.7 billion