CNOOC seeks Unocal support, may raise bid to $19 billion
CNOOC seeks Unocal support, may raise bid to $19 billion
Bloomberg, Hong Kong
Cnooc Ltd., China's third-largest oil producer, may raise its US$18.5 billion bid for Unocal Corp. by as much as 3 percent amid increasing opposition from U.S. lawmakers, people familiar with the plan said.
The Chinese state-controlled company may offer $19 billion in cash, or $69 a share, to counter Chevron Corp.'s cash-and- stock plan, said the people, who asked to not be identified. Chevron's agreement is worth $16.5 billion or $60.65 a share.
Cnooc seeks the support of Unocal's board, which so far has stuck with its April 4 Chevron agreement. Chevron has declined to raise its offer in response to Cnooc's June 22 offer of $67 a share. The bid is superior because it would close quickly, while Cnooc faces a lengthy U.S. review, according to Chevron.
"The funds from Chevron are immediate, whereas from Cnooc it could be a year," said Rodney Mitchell, who oversees $395 million as president of the Mitchell Group, a Houston money manager. Chevron may prefer to sit tight, counting on government opposition to Cnooc, rather than "get into a bidding war with the Chinese government," said Mitchell.
A Unocal board meeting today ended without any announcement about Cnooc's offer. Unocal spokesman Barry Lane declined to give details on the topics for discussion at the meeting.
Any agreement for Cnooc to acquire Unocal would be a "matter of national security" worthy of a serious investigation, said Senator Pete Domenici, a New Mexico Republican and chair of the Senate Energy Committee. "Now what's more important, some stockholders or national security?" Domenici said in an interview today.
Along with a higher price, Cnooc may take other steps to woo Unocal, according to the people familiar with the matter. The board of Cnooc, which met in Beijing this week, discussed a plan to pay as much as $2.5 billion into an escrow account to cover Unocal against possible class-action suits and other liabilities should Cnooc's bid fail, the people said.
Cnooc's director of investor relations, Xiao Zongwei, declined to comment in a phone interview today.
A breakup fee that high would be "stunning," said David Merjan, who helps manage $11 billion at William Blair & Co., including Cnooc shares. "As a Cnooc shareholder we think offering such a breakup fee is unwise," Merjan said.
Still, Merjan said, "It shows their commitment to doing the deal. They can say to Unocal's board: There's no risk to you at all. If we back out you recognize a huge windfall."
Americans Object
The bid by Cnooc, which is 70 percent owned by state-run China National Offshore Oil Corp., is opposed by 73 percent of Americans, according to a poll published yesterday by the Wall Street Journal and NBC News. Only 16 percent support the acquisition and 11 percent weren't sure, the Journal said.
U.S. Representative Duncan Hunter, chairman of the House Armed Services Committee, yesterday said he would consider legislation to block any merger.
"I think it's a mistake for the United States to let this go through from a security standpoint," Hunter, a Republican from California, said after a hearing by his committee.
Frank Gaffney of the Center for Security Policy told the committee that the Cnooc bid is an "ominous" move by a communist government to dominate energy resources for the benefit of China's economy and military.
Chevron, which would complete the combination with Unocal immediately after getting shareholder approval, has been helped by the opposition to Cnooc in Congress.
A possible Cnooc acquisition is less attractive because it would face "a complex and uncertain government review process," Chevron Chief Executive David O'Reilly wrote this week in the Wall Street Journal.