Chevron lifts Unocal offer 5pc

PUBLISHED : Thursday, 21 July, 2005, 12:00am
UPDATED : Thursday, 21 July, 2005, 12:00am

Latest US$17.1b bid still short of CNOOC's but politics driven by conservative fears swings the balance in favour of US firm

Chevron yesterday increased its takeover bid for Unocal by 5 per cent, raising the stakes in the battle for control of the ninth-largest oil company in the US.

Under pressure to match an US$18.50 all-cash offer for Unocal from rival CNOOC, Chevron revised its bid to include more cash and less stock, raising its value to US$17.1 billion, or US$63 per share based on Tuesday's stock price.

It had originally offered US$16.4 billion, or US$60.51 a share. 'Our increased offer has been driven by competitive circumstances,' Chevron chief executive David O'Reilly said in a statement.

Unocal's board has already approved Chevron's new offer. The two companies issued a joint statement yesterday in which Unocal reiterated its recommendation that Unocal stockholders 'vote in favour of adopting the Chevron merger agreement, as amended, at the special meeting of stockholders scheduled for August 10'.

Nonetheless, a Unocal spokesperson confirmed 'the board continues to evaluate the CNOOC bid'.

Whether CNOOC issues a counter-bid is unclear. Chief executive Fu Chengyu last week received permission from the company's board of directors to raise the company's bid from US$67 to US$69 per share, according to sources familiar with the situation.

While a spokesperson for the Chinese firm yesterday said the company was still evaluating its options, a source close to the CNOOC team said chances of success were 'significantly diminished'.

CNOOC management and advisers held meetings throughout the afternoon yesterday but emerged without an announcement. Asked whether company officials would reconvene today, an informed source replied: 'Why should there be a meeting?'

While CNOOC's bid is US$400 million higher than Chevron's latest offer, it has come under attack from conservative congressmen and commentators in the US, who fear its success would further Beijing's geo-strategic ambitions at the expense of US energy security.

They have also criticised CNOOC's financing arrangements for the offer, which involves low-interest or zero-interest loans from state banks and CNOOC's state-owned parent, and point out that majority foreign ownership of oil firms is banned in China.

On Friday, the House Energy and Commerce committee will hold a congressional hearing on the CNOOC bid. In addition, any takeover agreement with CNOOC would be subject to a review by CFIUS, a White House-backed committee that screens foreign acquisitions of US business for potential threats to US national security.

Chevron until now had resisted sweetening the terms of the agreement it struck with Unocal on April 4. Earlier, it appeared to be leveraging the political firestorm over the CNOOC bid rather than issuing a counter offer. Senior Chevron executives protested that they were 'competing against the Chinese government'.

Chevron has adjusted the cash-equity mix of its bid to 60 per cent Chevron shares and 40 per cent cash. Its original offer was 75 per cent shares and 25 per cent cash.

Due to the heavy mix of Chevron shares in the offer, the value of the bid changes by the day with fluctuations in the company's stock price. On April 4, when Unocal's board of directors announced the initial merger agreement, the deal was worth US$16.8 billion. But Chevron's share price sank enough at one point to cut it by nearly US$2 billion to US$14.9 billion. The new offer is worth US$17.1 billion based on Tuesday's prices.

'Chevron is restructuring the bid so it's closer to the original level,' said one analyst who is bullish on CNOOC. 'Of course, there's still a large stock component, so if their share price drops, the gap between their offer and CNOOC's would widen once again.'