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Unocal Says It Was Ready to Accept Chinese Offer But CNOOC Bid Was Beaten Out By Chevron Corp.

Posted on: Tuesday, 26 July 2005, 18:00 CDT

WASHINGTON 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 early last week, thwarting the "substantially completed" draft merger agreement between Unocal and CNOOC, according to a proxy statement Unocal filed Monday 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. It also sparked a backlash in Congress, where many legislators feared the deal presented risks to America's economic and national security.

But even though the political backlash complicated the sweetened bid by CNOOC, Unocal said 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 greater degree of transaction risk associated with the CNOOC proposal 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.

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.

On July 19, Chevron raised its offer to about $63 a share from around $60.50. The next day, Unocal's board accepted the offer and recommended shareholders approve it.

Unocal shareholders are scheduled to vote on the offer Aug. 10.

Source: Columbian

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