Chevron Corporation’s (CVX - Free Report) South African asset divestment recently witnessed a new turn of events, as competition among the bidders became intense. China Petroleum & Chemical Corporation or Sinopec (SNP - Free Report) and Switzerland-based Glencore Plc (GLNCY - Free Report) were in the race to acquire the assets.
Earlier, Sinopec won approval from the South African watchdog, Competition Tribunal, which had positioned Sinopec a step closer to victory over Glencore. However, the recent turn of events can change the outcome.
The Public Investment Corporation (“PIC”), a quasi-public investment entity of South Africa, has now entered the bidding war, according to reports. The entity is planning to back Glencore in the acquisition, buying 50% stake in the assets. Notably, the assets up for sale include more than 800 Caltex service stations and a 100,000-barrel per day refinery.
The Glencore and PIC team is planning on exercising a preemptive right held by the empowerment partner of Chevron, Off the Shelf. Mashudu Ramano is an influential person in charge of the empowerment partnership. Moreover, PIC is responsible for several funds including the government pension fund’s 2 trillion rands. It makes the entity a large empowerment player in the country.
Sinopec won the first round in acquiring 75% Chevron stake in the assets for $900 million. With PIC joining Glencore, the next rounds can be enticing for the investors.
Notably, the deal with Sinopec went largely in favor of the local government as Ebrahim Patel, the Economic Development Minister, squeezed out several commitments from the Chinese energy giant for the local communities. The commitments included Sinopec investing 6 billion rand in the economy. Now, if a new deal is made with Glencore and its partners, the kind of commitments the local government will receive is yet to be seen.
The sell-out from Chevron is in line with its divestment program announced in 2014, as the company is focusing on balancing its global portfolio with long-term business priorities. Moreover, it will help Chevron cut costs and streamline its business models to help it concentrate more on the assets producing higher-margin barrels.
San Ramon, CA-based Chevron has gained 18.9% in the past year compared with 13.9% growth of its industry.
Zacks Rank and a Stock to Consider
Currently, Chevron carries a Zacks Rank #3 (Hold).
Investors interested in the Energy sector can opt for a better-ranked stocks in the same space like Anadarko Petroleum Corp. (APC - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Woodlands, TX-based Anadarko is an exploration and production company. For 2018, its bottom line is likely to be up 239.3%. In the last reported quarter, the company delivered a positive earnings surprise of 20.1%.
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