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China-Japan-Koreas
Unocal Picks Chevron over Chicoms
2005-07-20
EFL and News. Good to see national security interests stay in American hands
U.S. oil producer Unocal Corp. endorsed a sweetened $17 billion takeover offer from Chevron Corp., preferring it to a higher bid from China's state-run CNOOC Ltd. <0883.HK>.

Chevron , the second-largest U.S. oil company, raised its stock and cash bid to $63.01 per share from roughly $60, turning up the heat in an international battle for energy assets as strong demand and tight supply hold crude oil prices near record levels.

The improved offer for Unocal, which has assets stretching from Myanmar to the Gulf of Mexico, sets the stage for CNOOC to raise its $67 a share cash bid further.

"We're likely to see CNOOC increase its bid, which it has been signaling for a while," said Duane Grubert, an analyst with Fulcrum Global Partners.

A CNOOC spokesman said the company remained "comfortable" with its $18.5 billion bid and believed its offer had a "distinct advantage." A person familiar with the matter said CNOOC had anticipated a higher Chevron bid and was reviewing options on how to react.

But Chevron still remains the favorite to win Unocal, whose board has favored Chevron's bid partly due to concern U.S. regulators might reject the CNOOC deal based on national security grounds or the deal may be stuck in long review process. It recommended shareholders accept the sweetened offer at a shareholders' meeting already scheduled for Aug. 10.

"We're still making the bet that Chevron will prevail," Grubert said. "The politics against the Chinese bid are so severe."

CNOOC will try to convince shareholders that its deal would be approved by the U.S. government, the source familiar with the matter said.

"Price is only one issue on shareholders' minds. The other issue is to make people understand the 'certainty issue'," said the source, who spoke on condition of anonymity. "CNOOC is absolutely committed to the transaction and determined to win."

CNOOC has made some concessions in an attempt to woo Unocal. It agreed to set aside $2.5 billion in a U.S. escrow account that could be tapped by Unocal shareholders if CNOOC walked away from a deal. CNOOC also put $500 million in escrow to pay a break-up fee attached to the Chevron-Unocal deal.

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