We Were Told
Early Friday morning. Radio on low. Window open, letting in a cold, refreshing breeze. Oh, how I love getting to my office every day very early. (My early is pretty darned early.) Checking my positions. Working on my morning note, Market Recon. Some folks write their morning notes at night. I tried that years ago, and found that at night, I am better behaved. You get the real me at zero dark thirty.
What was that? The anchor on the radio just said something about Chevron (CVX) taking over Anadarko Petroleum (APC) . $33 billion in cash and stock? Yes! I had wanted to back into CVX for a bit, but had not yet pulled that trigger. Perhaps my favored exploration names would pop on the news. By favored, I mean the ones that I actually hold a long position in... BP (BP) , Exxon Mobil (XOM) , and Royal Dutch Shell (RDS.A) . Perhaps this would be a great day. What about Anadarko? Personally, I had not played that name, but I remember Jim Cramer saying that I should.
I remember Citigroup analyst Robert Morris going out on a limb a couple of weeks back. Morris put a "Buy" rating on the stock with a $65 price target. Hmm. The deal, the way I read it, values APC shares at $65 per. Maybe I should pay a little more attention to this Morris fellow. As for our fearless leader, the leader of Cramerica... Jim told us that the name was under appreciated by the street. He told us that current management would find a way to unlock value for shareholders. By the way, Doug Kass told us to own the banks coming into earnings season. I did not. Maybe, just maybe, these two cats are who the rest of us in this industry take our lead from for a good reason.
Basking In The Permian
This deal will certainly strengthen Chevron's position in the Permian Basin, while also adding to global reserves of both petroleum and LNG. In the early morning release Chevron CEO Michael Wirth stated "The combination of Anadarko's premier, high quality assets with our advantaged portfolio strengthens our leading position in the Permian, builds on our deep-water Gulf of Mexico capabilities and will grow our LNG business." By the way, that Gulf of Mexico business is considered a high margin operation.
Sarge's Friday Morning Thoughts
I'll tell you what. My oil longs are meandering around last night's closing prices shortly after the open. I am approximately 150% sure that I will buy some Chevron on this discount. I will probably draw some of those funds from my other energy names. I am not likely to let this discount pass, and those other names are all sitting on nice gains since entry. That at least keeps the trade close to cash neutral.
Did I mention that Chevron expects this deal to be accretive to free cash flow as well as earnings within a year upon closing. One more thing. Chevron also indicated that the firm would expect to add $1 billion to the firm's share repurchase plan. Food for thought.
In addition, I am coming in short some GS puts that expire next week. I am not likely to risk losing the sudden gains made there by holding that position over the weekend. Goldman Sachs (GS) reports on Monday.