Chevron’s Unocal Bid Supported
Chevron Corp.’s bid to buy Unocal Corp. got a boost Monday when an influential shareholder advisory firm said a competing offer from CNOOC Ltd. wasn’t high enough to offset the political uncertainties surrounding the Chinese company’s proposal.
Since CNOOC launched its rival bid June 22, the company’s effort has been dogged by worries that political opposition from Washington could delay or block any deal it struck to buy the oil company. For those and other reasons, Institutional Shareholder Services called CNOOC’s bid “highly uncertain,” and urged Unocal stockholders to vote in favor of Chevron’s offer, even though it was lower.
The recommendation from ISS, which helps analyze takeover deals and other matters for large shareholders, puts further pressure on CNOOC to raise its all-cash bid of $18.5 billion, or $67 a share, if it wants to woo Unocal away from Chevron. Shareholders of El Segundo-based Unocal are scheduled to vote Aug. 10 on Chevron’s cash and stock offer, which, based on Chevron’s closing price Monday, is worth $17.36 billion, or $63.71.
ISS calculated that a deal with CNOOC would take an additional six months to close, and the delay would reduce the value of any CNOOC bid by 5% -- not counting the risk of additional political interference, which seems likely.
The energy bill passed by Congress last week requires studies that would delay a CNOOC acquisition by at least 120 days. And Sen. Evan Bayh (D-Ind.), referring to the CNOOC offer for Unocal, warned Friday that he “will not be alone amongst my colleagues, in the Senate and in the House, who will be paying attention to what happens in the coming days, and if need be, will be prepared to act when Congress returns in September.”
CNOOC, whose parent is government-controlled China National Offshore Oil Corp., has thus far declined to change its original offer even though it was rejected last month by Unocal’s board. However, the Chinese oil firm is still weighing whether to raise its bid to at least $70 a share or drop out of the contest, according to an advisor to CNOOC who asked not to be identified. The person said a decision was expected very soon.
While ISS could change its opinion if CNOOC opts to raise its offer, the report is nonetheless another hurdle to overcome, said Stephen Leeb, who manages $120 million in investments, including Chevron shares, at Leeb Capital Management.
“It makes it more likely that they will walk away,” Leeb said of CNOOC. “The people at CNOOC are not blind to the fact that Congress is not looking very fondly at this bid. If I’m betting, I’m betting that they’re X-ing out Unocal and going after something else.”
Chris Young, ISS director and co-head of mergers and acquisitions, said CNOOC didn’t help its cause by going silent in recent weeks just when he and others wanted to hear the company’s pitch.
“A lot of [Unocal shareholders] are frustrated with CNOOC’s silence, or lack of assertiveness,” Young said. “Are you really going to turn down a deal that’s certain when you don’t even know what’s going on with the other guy?”
CNOOC spokesman Xiao Zongwei in Beijing had little comment on the ISS recommendation: “That’s a normal practice for any such kind of proxy services firm.”
Xiao reiterated that CNOOC “has never changed its position” regarding its original offer.
Shares of Unocal fell 48 cents Monday to $64.37. Although the stock price is well below a potential $70 or higher counter bid from CNOOC, its finish above Chevron’s current $63.71 offer indicates there is still hope for a higher offer among some Unocal investors.
Shares of San Ramon, Calif.-based Chevron rose 42 cents to $58.43.
As part of their campaign to sway investors, top executives of Chevron and Unocal met Monday with officials at the California Public Employees’ Retirement System.
Monday’s opinion from ISS will carry a lot of weight with big Unocal shareholders, according to Frederick Green, head of mergers and acquisitions at law firm Weil Gotshal & Manges. Glass Lewis & Co., another firm that advises institutional investors and other large shareholders, said it will issue its recommendation on the Chevron proposal later this week.
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Staff writers Don Lee and Marc Lifsher contributed to this report.
