Unocal Eyes Chevron Bid

Unocal's board of directors has endorsed a sweetened, $17 billion takeover bid from Chevron, rejecting a higher offer from one of China's state-owned oil companies.

The decision by Unocal's board late Tuesday could signal an end to China's most ambitious attempt yet to acquire an American corporation. The takeover battle also had sparked debate about U.S. security concerns with the communist nation.

Chevron boosted its offer by $2 per share to $63 per share — or $17 billion overall — shortly before the Unocal board met Tuesday night. CNOOC Ltd., an affiliate of China National Offshore Oil Corp., has an $18.5 billion offer on the table for the El Segundo-based company. Unocal's board had previously also endorsed Chevron's lower offer over the higher CNOOC bid.

In a joint statement with Chevron, Unocal's board urged stockholders late Tuesday to accept the amended bid at a shareholders' meeting scheduled for Aug. 10.

But a spokesman for China's third-largest oil company vowed early Wednesday that CNOOC was not ready to drop out of the bidding war.

"The situation with us is that we have what we consider a clearly superior, full-cash offer on the table, and it remains there," said CNOOC spokesman Ray Bashford in Hong Kong. "We're willing to continue negotiations."

David J. O'Reilly, Chevron's chairman and chief executive officer, said the revised bid was a "compelling transaction for Chevron stockholders" despite the higher price tag.

"We are pleased to have the continued support of the Unocal board of directors and look forward to closing the transaction in just three weeks," O'Reilly said in a prepared statement.

The CNOOC bid has sparked considerable opposition from lawmakers who have raised national security and other concerns.

CNOOC, which is 70 percent owned by the Chinese government, had offered $67 per share for Unocal Inc. last month after Unocal had already agreed to be acquired by the San Ramon-based Chevron.

CNOOC's bid, which totaled $18.5 billion, was considerably higher than Chevron's original offer of roughly $60 per share in a combination of cash and stock based on Tuesday's closing price on Chevron stock. That bid was valued at around $16.6 billion.

The difference in the CNOOC and Chevron bids had grown as investors drove the price of Unocal shares above Chevron's offer price.

Shares of Unocal rose 17 cents to $64.99 at the end of regular trading on the New York Stock Exchange on Tuesday. Shares of San Ramon-based Chevron rose 94 cents to $57.30.

After CNOOC made its bid for Unocal, members of Congress demanded a review of the offer by the Committee on Foreign Investment in the United States. The group, led by Treasury Secretary John Snow, was created to monitor foreign investment activity in the United States with an eye on protecting national security.

Members of Congress have complained that CNOOC's bid for Unocal is part of a broader strategy by communist China to hoard energy supplies before they run out. Another concern is that the United States might unintentionally hand over technology or assets that have military value.

The House registered its discomfort last month by approving a resolution that asks the president for an immediate and thorough review if Unocal accepts CNOOC's offer.

Nine senators sent a letter Tuesday to President Bush urging a full investigation into CNOOC's proposed acquisition of Unocal.

Chevron Corp., based in San Ramon, Calif., explores for, refines and transports crude oil and gas. Unocal's operations are in exploration and production of crude oil and natural gas, with no refineries or gasoline stations. Together the two companies account for more than 11 percent of U.S. crude oil production.

Under the agreement between Unocal and Chevron reached last April, Chevron has the right to force a vote of Unocal shareholders. That vote is scheduled for the Aug. 10 meeting.

Chevron's revised offer is structured as 40 percent cash and 60 percent stock. Unocal stockholders may elect to receive for each share of Unocal stock either $69 in cash, 1.03 shares of Chevron stock or a combination of $27.60 in cash and 0.618 of a share of Chevron common stock. Chevron will issue approximately 168 million shares of stock and pay approximately $7.5 billion in cash, according to the joint statement.

Since CNOOC made its all-cash bid, Chevron has emphasized that its offer was superior because it had already cleared regulatory reviews. The CNOOC bid, by contrast, could take six months or more to be reviewed by U.S. and overseas agencies.

CNOOC first expressed its interest in acquiring Unocal last December, before Chevron approached.