Chevron Corp. on Thursday said it has no plans to modify its $16.5 billion offer for Unocal Corp., despite a competing $18.5 billion unsolicited bid for the company submitted on Wednesday by CNOOC Ltd., China's third-largest oil company.
"We continue to believe that we have the best deal on the table," Chevron spokesman Don Campbell said. He added that the proposed deal is likely to win final regulatory approval soon and that Unocal shareholders probably would vote on it in early August. "We have a high degree of certainty that we will bring this deal to a successful conclusion," he said.
Chevron's offer includes a "force the vote" provision requiring that the bid be submitted to Unocal shareholders even if Unocal's board decides that CNOOC's offer is superior.
Unocal directors have formally recommended that shareholders vote in favor of Chevron's offer. However, Unocal on Thursday said it received permission from Chevron to enter discussions with CNOOC Ltd.
Unocal directors have no obligation to endorse CNOOC's bid, even if it is for a significantly higher price. While the directors have a legal duty to protect shareholder interests, they could still reject a higher bid for several reasons, including that it is not in the best long-term interests of the company or is not likely to win regulatory approval in Washington.
Unocal directors are expected to meet soon to discuss CNOOC's offer. They could respond by either reaffirming their support for the current Chevron bid or could declare CNOOC's offer superior.
If they reject CNOOC's offer, CNOOC could respond by taking its offer directly to Unocal shareholders. But no vote on CNOOC's bid could take place until after Unocal shareholders vote on Chevron's bid.
All three companies involved have hired top merger and acquisition public relations firms, indicating they believe the fight could become bitter and protracted.
Chevron's decision to stand behind its current bid came as some Wall Street analysts and Unocal shareholders suggested the company might have to improve its offer to keep the support of Unocal's board and defeat CNOOC. But rising political opposition in Washington to CNOOC's bid probably means Chevron that will not have to match any final offer from the Chinese company, they said.
Many analysts believe CNOOC's all-cash offer of $67 per share is only a starting point. Unocal's stock has been rising lately, suggesting that investors expect a bidding war. The shares closed at $65.02 Thursday, up 16 cents, or 0.3 percent.
"It's possible that Chevron will have to raise its bid," said analyst Jeb Armstrong of Argus Research. "But I think their first alternative will be to let the government run interference for them." Several politicians on Thursday demanded that the Bush administration use its authority over foreign direct investment in the United States to thoroughly scrutinize the offer from CNOOC, which is 70 percent owned by the Chinese government.
Supporters of CNOOC's bid say the deal does not present any real regulatory problems because most of Unocal's oil and natural gas reserves are in Asia and the company produces less than 1 percent of the oil and gas consumed in the United States. CNOOC has also committed to retaining most of Unocal's employees and continuing the company's policy of selling substantially all of the oil and gas produced by its U.S. properties in U.S. markets.
"We would encourage [Unocal's board] to act as fiduciaries and keep this as open an auction process as possible," said hedge fund manager Peter Schoenfeld, whose firm owns a block of Unocal stock.