On March 1, 2000, Canadian Occidental Petroleum Ltd. (CanadianOxy), and the Ontario Teachers Pension Plan Board (Teachers) announced that they had reached an agreement with CanadianOxy’s US-based affiliate Occidental Petroleum Corp. (Occidental) under which CanadianOxy will buy back approximately 50 per cent of Occidental’s 29 per cent holdings in CanadianOxy and Teachers will buy the balance. In addition, CanadianOxy and Occidental will exchange other assets in two joint ventures so that each owns 100 per cent of one of the businesses. When the transaction is completed, Teachers will be CanadianOxy’s largest shareholder, with slightly less than 20 per cent of the shares, and the balance of the CanadianOxy shares will be widely held.
The move follows a souring of relations between the two companies—which had been affiliated for approximately 30 years—following Occidental’s announcement in July of 1999 that it was looking at ways to dispose of, or otherwise maximize, the value of its CanadianOxy shareholding, which has a market value of approximately $1.2 billion. In August 1999, CanadianOxy’s independent committee and board of directors adopted a shareholder rights plan intended to provide the CanadianOxy board with more time to develop and consider alternatives if Occidental were to propose a change of control transaction. CanadianOxy faced two major hurdles in obtaining shareholder approval of its rights plan. The first was Occidental, which announced that it would vote its 29 per cent shareholding against approval of the plan. The second was Fairvest, which as a matter of principle recommended against approval of the plan because of its treatment of lock-up agreements. The CanadianOxy plan treats locked-up shares as being included in the determination of shares beneficially owned by an acquiror—otherwise a potential acquiror could acquire 19 per cent of CanadianOxy in the market, then lock up the 29 per cent Occidental block and hold a 48 per cent interest before commencing a bid. Notwithstanding Occidental’s and Fairvest’s opposition, CanadianOxy won shareholder approval for the rights plan by a large majority at a February 3, 2000 special shareholders meeting.
Under the sale agreement, Occidental and Canadian Oxy will continue to be partners on the Masila oil-producing block in Yemen, which Occidental has a 38 per cent stake in. CanadianOxy will give up its 15 per cent interest in jointly held oil and gas interests in Ecuador, leaving Occidental with full control. In exchange, Occidental will give up a 15 per cent interest in sodium chlorate producer CXY Chemicals, leaving CanadianOxy in full control there. CanadianOxy will keep its 7.32 per cent stake in the Syncrude project. CanadianOxy also plans to drop the “Occidental” from its name.
CanadianOxy will buy back 20 million shares of Occidental’s 40.2 million share stake at $29.61 a share, and subsequently cancel the shares, resulting in a 15 per cent reduction in total shares outstanding. Teachers will purchase the remaining 20.2 million shares, also for $29.61 a share.
In-house counsel John McWilliams, Senior Vice-President and General Counsel, and Eric Miller, Vice-President and General Counsel, Corporate led CanadianOxy’s legal team. Patrick Finnerty, Nancy Brennan, Daniel Fournier, Caroline Helbronner, David Jackson, Jacqueline Moore, Wallace Shaw and Susan Wakil of Blake, Cassels & Graydon LLP act as outside counsel to CanadianOxy. Jeffery Barnes and David Robottom of Fraser Milner are special counsel to the Independent Committee of the Board of Directors of CanadianOxy. In-house counsel Donald de Brier, Executive Vice-President and General Counsel, and Linda Peterson, Senior Counsel represented Occidental. Canadian counsel to Occidental are Francis Allen (now with Borden Ladner Gervais LLP), Christopher Nixon, Firoz Ahmed (tax) and Ian Bock (tax) of Osler, Hoskin & Harcourt LLP. US counsel to Occidental is Jonathan Friedman of Skadden, Arp, Slate, Meagher & Flom LLP. Jonathan Lampe, Jeff Singer and Susan Doi of Goodman Phillips & Vineberg represented Teachers.