Unocal spurns Chinese firm’s bid

Chevron Corp. has raised its offer for oil and gas producer Unocal Corp., winning the backing of Unocal’s board over a Chinese rival.

Chevron on Tuesday night upped its bid to $17.1 billion from $16.5 billion, still less than the $18.5 billion offer from the China National Offshore Oil Corp. (CNOOC).

But the takeover of one American energy company by another has already cleared regulatory hurdles and is more politically palatable in the U.S. than the offer by the Chinese company.

“It would save Unocal a lot of headaches if they could accept the Chevron bid in good faith and not worry about a lengthy political review [of the CNOOC bid]. Chevron’s new offer makes it easier … it’s a superior bid,” said Phil Flynn, an energy market analyst with Alaron Futures and Options.

Members of Congress have objected to CNOOC’s attempt to acquire Unocal, based in El Segundo, Calif. Unocal produces only about 0.8 percent of U.S. petroleum, but critics of the bid say that the proposed acquisition must be viewed in light of China’s rising — and potentially threatening — economic and military power.

“It’s my judgment that U.S. strategic interests are not served by selling a U.S.-based oil company to a company that’s 70 percent owned by the Chinese communist government,” Rep. Joe L. Barton, Texas Republican, said this week.

Unocal shareholders are scheduled to vote on the Chevron offer Aug. 10. If they reject it and later favor CNOOC, the purchase would have to clear political and regulatory hurdles, including congressional threats to block it.

China’s communist government, which controls 70 percent of CNOOC shares, has bristled at what it says is political meddling in a market transaction.

CNOOC yesterday said it was not ready to bow out of the competition for Unocal.

“CNOOC’s $67 per-share all cash offer has not been changed and remains in effect,” said Michael Buckley, a spokesman for CNOOC. “We regret that they have not yet embraced our offer. We will continue to monitor the situation actively.”

CNOOC last week set aside $2.5 billion that would go to Unocal shareholders should they accept the Chinese bid but then see it unravel if it is blocked by regulators or the Chinese company abandons the deal.

CNOOC’s board has to decide whether to sweeten its offer.

“I think this is becoming a matter of pride for the Chinese, so I wouldn’t be surprised if they gave it a shot,” Mr. Flynn said.

Chevron, based in San Ramon, Calif., on Tuesday raised its offer by about $2.50 per share to $63, and said the new deal would give Unocal shareholders 40 percent cash and 60 percent stock.

“Our increased offer has been driven by competitive circumstances, but even at this higher price it remains a compelling transaction for Chevron stockholders,” said Chevron Chairman and Chief Executive Officer David O’Reilly.

Unocal’s board Tuesday night recommended its shareholders accept the increased offer from Chevron at the Aug. 10 special meeting. The board previously had recommended the lower Chevron bid.

Shares of Unocal yesterday fell 3 cents to $64.96 on the New York Stock Exchange. Chevron shares rose 30 cents to $57.60.

Oil prices yesterday fell by $1.11 to $56.35 a barrel on the New York Mercantile Exchange. Prices are about 37 percent higher than they were one year ago, pushed up largely by strong demand in the United States, China and other nations with industry- and consumer-driven economies.