Occidental"s Chazen Era Begins After Shareholders Vote Out Irani - Businessweek

Ray Irani inherited an unwieldy
conglomerate including oil, movies and meatpacking when he took
over as Occidental Petroleum Corp. (OXY)’s chief executive in 1990.

Over the next 23 years he transformed that hodgepodge of
businesses into a global oil powerhouse, providing investors
with returns more than double (OXY) the gains of the Standard & Poor’s
500 Index. Now, Occidental is set to undergo another makeover
after the 78-year-old Irani was thrown out of his chairman’s
seat yesterday by shareholders who decided he’d overstayed his
welcome.

“Occidental is ready for new blood and new thinking — a
wholesale change,” said Fadel Gheit, an analyst at Oppenheimer
& Co. in New York.

Irani’s rejection came after investors rebelled against the
board’s decision to replace chief executive officer Stephen I. Chazen, and after years of discontent over Irani’s outsized pay
packages. Occidental’s board surprised shareholders in February
by announcing it was seeking a replacement for Chazen as the
company debated how it should be structured for the future.

Chazen, 66, has advocated a North-American focus for the
$73 billion energy company, while Irani wanted to retain
Occidental’s global reach with drilling assets in the Middle
East, Africa and Latin America, said David Neuhauser, a managing
director at Northbrook, Illinois-based Livermore Partners Inc.

Breakup Story

The departure of Irani may free Chazen to pursue a breakup
of the company that could unlock more than $30 billion of
additional value, said Neuhauser, who helps oversee $100 million
in assets including Occidental shares. The valuation surge would
come from selling or spinning off the company’s international
assets, chemical and pipeline businesses into separate companies,
he said.

“It’s ripe for splitting up,” Neuhauser said. “If you
sold them, you’d get a pretty penny for those assets. That could
be used for buybacks and dividends to reward shareholders.”

In yesterday’s vote, 478 million shareholders went against
Irani, while 150 million voted for his re-election according to
a company filing. Occidental rose 3 percent (OXY) to close at $90.76
yesterday.

The board announced a slate of new governance improvements
April 29 after investors questioned the role Irani had played in
the decision to replace Chazen as CEO. Shareholders including
First Pacific Advisors LLC, Cambiar Investors LLC and Livermore
Partners advocated that Irani should leave instead of Chazen.

Chazen Stays

The company reassured shareholders Chazen would stay as CEO
through 2014. The governance changes included barring future
CEOs from assuming the role of chairman, declaring that chairmen
after Irani will be independent, cutting board and executive pay
and adding two directors.

Irani’s departure is more than a year ahead of the
retirement date he announced following previous shareholder
criticism of his compensation as excessive. The best paid oil
industry CEO in 2009, he’s received average annual compensation
of almost $80 million since 2001, according to data compiled by
Bloomberg. Irani earned more than $45.6 million last year after
he gave up the CEO role.

Yesterday’s vote may make Irani eligible for a severance
package of about $38 million, including a $5.7 million life
insurance policy and annual payments of $2.2 million, according
to the company’s proxy filing (OXY). Having to leave under such
circumstances may entitle him to $21.6 million in retirement
pay and, if it’s considered a termination, about $16.8 million
more.

Beirut Native

Born and raised in Beirut, Lebanon, Irani curried favor
with rulers across the Middle East and North Africa to beat out
bigger rivals for drilling contracts that helped fuel growth
prospects in the U.S. and return cash to shareholders. During
his time leading the company, Occidental saw a sixfold (OXY) increase
in its share price, according to data compiled by Bloomberg.

The company’s value has fallen 25 percent since shares
touched a $115.74 high on May 2, 2011 — just days before Irani
handed the CEO reins to Chazen — as a push to raise output in
California was stymied by the state’s regulatory morass and high
costs. Occidental has rallied 18 percent this year as Chazen
executes a plan to cut drilling costs by as much as $400 million
and boost U.S. crude production.

Occidental has the potential to transform into four
separate companies: a U.S. crude producer, an international oil
and gas explorer, a chemicals maker and a pipeline and logistics
concern, Oppenheimer’s Gheit said.

Moving the Needle

“Each separate and stand-alone entity would be very
competitive and highly valued in its own sector,” said Gheit,
who rates the stock the equivalent of a buy and doesn’t own
shares.

Chazen said in an April 25 conference call with investors
that the company would weigh breakup options that “move the
needle a lot,” such as selling assets in South Texas and
Colombia and splitting the other international businesses into
another company. Those prospects would allow the CEO to end his
career with “a major cash return to shareholders,” Paul Sankey, an analyst with Deutsche Bank AG in New York, said April
30 in a note to investors.

Irani earned a doctorate in chemistry at the University of
Southern California and became president of Occidental in 1984.
He took over as CEO in February 1990, succeeding longtime CEO
Armand Hammer, who died a few months later at the age of 92.
Occidental’s share price was about $13 at the time, and the
company had spread into film-making, horse breeding and meat
packing.

‘Call Me’

Irani sold off the unrelated businesses and forged personal
relationships with Middle Eastern rulers to help win drilling
contracts, ensuring that oil ministers had his home telephone
number to reach him with any questions, he said in a 2009
interview.

At yesterday’s board meeting, Chazen spoke for several
minutes praising Irani and all he’d done for Occidental. He
didn’t specify what role, if any, Irani may play at the company
in the days ahead.

“I’m not going to tell you every day was a trip to
Disneyland,” Chazen said. “But I’m glad I’m going to be able
to talk to him in the future.”

Occidental director Edward Djerejian, a former U.S.
ambassador to Israel and Syria, will become chairman and Spencer Abraham will be vice chairman, the company said. Director Aziz
Syriani submitted his resignation as of May 2, the company said
in a filing.

To contact the reporter on this story:
Bradley Olson in Houston at
bradleyolson@bloomberg.net

To contact the editor responsible for this story:
Susan Warren at
susanwarren@bloomberg.net

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Occidental"s Chazen Era Begins After Shareholders Vote Out Irani - Businessweek