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Unocal was ready to OK higher CNOOC offer Company says board was close to endorsing Chinese company’s takeover plan before Chevron raised its offer to $63 per share Brad Foss Associated Press Business Writer
Unocal Corp. says it was prepared to drop its support for a takeover agreement with Chevron Corp. and accept an acquisition by CNOOC Ltd. had the Chinese state-owned oil company raised its bid sufficiently enough to offset regulatory and financial risks.
Instead, Chevron upped its offer for the El Segundo, Calif.-based company, thwarting the “substantially completed” draft merger agreement between Unocal and CNOOC, according to a proxy statement Unocal filed July 25 with the Securities and Exchange Commission.
Unocal first agreed to be acquired by Chevron in April for $16.6 billion in cash and stock. Two months later, China’s third-largest oil producer offered $18.5 billion in cash, or $67 a share, for Unocal, touching off weeks of negotiations between the companies, as well as a backlash in Congress, where many legislators feared the proposed deal presented risks to America’s economic and national security.
While the Chevron proposal had cleared all regulatory hurdles by mid-July, the CNOOC bid was likely to face months of intense scrutiny in Washington. Unocal wanted the right price But even though the political backlash complicated the sweetened bid by CNOOC, Unocal says it was ready — for the right price — to try to make it work.
“Unocal’s advisors conveyed to CNOOC’s advisors their expectation that the Unocal board would be willing to accept the considerably greater degree of transaction risk associated with the CNOOC proposal, as compared with the Chevron transaction, if the board were presented with a CNOOC proposal at a price that could be viewed as sufficient to compensate Unocal’s stockholders for the additional risks,” the proxy said.
On July 15, Unocal Chief Executive Charles Williamson conveyed the message directly to CNOOC Chief Executive Fu Chengyu, urging Fu to make his best offer. CNOOC wanted Unocal to lobby CNOOC, which had been authorized by its board to raise its all-cash offer to $69 a share, said the next day it would not put any more money on the table unless Unocal agreed to pay the $500 million cost of terminating the Chevron deal and lobby for the deal in Congress.
Unocal demurred.
Nevertheless, “by July 17, Unocal’s and CNOOC’s advisors had substantially completed negotiation of the key documentation relating to the potential CNOOC transaction,” the proxy said. That same day, Williamson called Chevron Chief Executive David O’Reilly to notify him of “the likelihood that, absent an improvement in the terms of the Chevron merger, the board would be inclined to change its recommendation.”
But that never happened.
On July 19, Chevron raised its cash-and-stock offer to about $63 a share from around $60.50, and the next day, Unocal’s board accepted the higher offer and recommended shareholders approve it.
Unocal shareholders are scheduled to vote on the offer Aug. 10.
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