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Unocal board backs higher Chevron bid Chevron boosts cash/stock package to $17 billion, while Chinese firm CNOOC sticks with its $18.5 billion cash offer Gary Gentile Associated Press Business Writer
China’s CNOOC Ltd. stuck by its original bid for Unocal Corp. July 20, even as Unocal’s board endorsed a sweetened offer from rival bidder Chevron Corp.
“We regret that they have not yet embraced our offer,” CNOOC Ltd. said in a prepared statement. “We will continue to monitor the situation actively.”
Chevron raised its cash and stock offer by about $2.50 per share to $63 per share — or $17 billion overall — shortly before the Unocal board met the evening of July 19.
The new offer is about 40 percent cash and 60 percent stock. Chevron would issue about 168 million shares of stock and pay $7.5 billion in cash if the transaction goes through.
CNOOC, which is 70 percent owned by the state corporation China National Offshore Oil Corp., has an offer of $67 a share or $18.5 billion on the table for the El Segundo-based Unocal. Its board reportedly had authorized an increase to $69 a share.
The deal has met stiff opposition in Congress, where members have said they are concerned because of CNOOC’s majority ownership by the Chinese government. Analyst: CNOOC would have to add financial guarantee Analysts said CNOOC would likely have to increase its offer and add a substantial financial guarantee if it wants to persuade Unocal shareholders to reject the Chevron bid in a vote scheduled for Aug. 10.
“It is too late for them to pull out,” said Fadel Gheit, an analyst with Oppenheimer who covers Unocal. “You are not dealing with a bunch of investors. You are dealing with the pride of the Chinese Communist Party,” he said.
Gheit believes CNOOC would have to raise its bid to around $70 a share and offer a guarantee to Unocal shareholders, who stand to take a hit if they reject the Chevron bid only to see the CNOOC bid scuttled by federal regulators.
The guarantee would have to be around $7 a share, or as much as $3 billion, Gheit said.
Other analysts said the Chevron bid is superior and should prevail despite its lower value because it carries fewer “closing risks” and is backed by the Unocal board.
“While it is difficult to determine CNOOC’s ultimate response, it appears clear the Unocal board favors Chevron over CNOOC and the narrowing of the two bids makes it more compelling for investors to approve the transaction Aug. 10,” analyst Bruce Lanni of A.G. Edwards wrote in a July 20 note to clients.
Merrill Lynch analyst John P. Herrlin called the Chevron bid superior in part because its stock component is more tax efficient for Unocal shareholders. Political support for Chevron U.S. Sen. Diane Feinstein said she supports the latest tentative deal between Unocal and Chevron, based in San Ramon.
“While this is a complicated business deal, I think the Unocal board made the right decision based on the times and the complications of the financing,” she said in a statement.
Consideration of the Chinese deal by federal regulators could take six months or more and is highly uncertain given the political opposition to the proposed deal. Chevron, by contrast, has already secured regulatory approvals and has said it could close the transaction within days of the Aug. 10 vote.
Some members of Congress insist the deal would hurt national security and result in vital energy resources being redirected to China. CNOOC has tried to defuse political opposition to its bid by asking the Committee on Foreign Investment in the United States to review its offer.
The group, led by Treasury Secretary John Snow, was created to monitor foreign investment activity in the United States with an eye on protecting national security. China accused or hoarding Lawmakers also have complained that CNOOC’s bid for Unocal is part of a broader strategy by China to hoard energy supplies before they run out. Another concern is that the United States might unintentionally hand over technology or assets that have military value.
The House registered its discomfort in June by approving a resolution that asks the president for an immediate and thorough review if Unocal accepts CNOOC’s offer.
Nine senators sent a letter July 19 to President Bush urging a full investigation into CNOOC’s proposed acquisition of Unocal.
Chevron, based in San Ramon, Calif., pumps about 1.6 million barrels of oil and 3.8 billion cubic feet of gas daily. Unocal, which is similar in size to CNOOC, produces 170,000 barrels of oil and 1.6 billion cubic feet of gas each day.
Unocal is attractive to CNOOC because of its extensive reserves in Asia. Chevron also has significant presence in that region.
“Our increased offer has been driven by competitive circumstances, but even at this higher price it remains a compelling transaction for Chevron stockholders and is accretive to both cash flow and earnings per share in 2006,” said Chevron Chairman and Chief Executive David J. O’Reilly in a prepared statement.
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