Icahn's buyback deal set up Kerr-McGee's $16.4B sale to Anadarko

In early 2005 Carl Icahn and Jana Partners accumulated about 7% of Kerr-McGee, an oil and gas producer. In March, Icahn's letter demanded the board return money to shareholders immediately and sell the chemicals business, threatening board seats at the annual meeting.

Kerr-McGee first approved a chemicals sale and a $1 billion buyback; Icahn called that insufficient. On April 13, 2005 the two sides settled: Kerr-McGee launched a Dutch-auction tender for up to $4 billion at $85–$92 a share — a 15% premium — agreed to sell $2–2.5 billion of shorter-life oil and gas properties, and cut its dividend, while Icahn and Jana withdrew their nominees and lawsuits.

The strategy worked too well: a slimmer, better-valued Kerr-McGee became a takeover target, and in 2006 Anadarko agreed to buy it for $16.4 billion — a 40% premium. Icahn later wrote that investors who bought when he did realized about 234% on the Anadarko acquisition.

A $4B Dutch-auction buyback at $85–92 a share (15% premium) plus $2–2.5B asset sales; then a $16.4B Anadarko takeover at a 40% premium.

The 13D and letters put immediate cash returns on the board's agenda.

A $4 billion buyback at a premium forced the market to reprice the stock.

Selling non-core assets focused Kerr-McGee on exploration and production.

The cleaner balance sheet made it an obvious acquisition for Anadarko.

Buybacks and asset sales can appease an activist in year one, but they also make a company cleaner and more valuable — the same campaign can quietly set up the sale that ends the company.

Anadarko closed the Kerr-McGee acquisition in 2007, creating a larger independent; Kerr-McGee's chemicals business had already been sold off in 2006. Icahn and Jana's campaign is cited as a case where activist demands improved the target enough to attract a takeover.