Unocal Board Recommends Accepting Chevron Bid

Unocal's board of directors Tuesday recommended that its shareholders accept a last-minute, $17 billion takeover bid from Chevron (search), rejecting a competing offer from China's third-largest oil company.

Chevron boosted its offer by $2 per share shortly before the Unocal board met Tuesday night, raising its bid to $63 per share or more than $17 billion.

"Our increased offer has been driven by competitive circumstances, but even at David J. O'Reilly (search) said in a statement released late Tuesday night. "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."

Unocal's board of directors recommended the company's stockholders vote in favor of adopting the amended merger at their Aug. 10 meeting.

The move appeared to be a blow to CNOOC, an affiliate of China National Offshore Oil Corp (search). But a spokesman said the company wasn't ready to abandon its bid.

"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 (search) spokesman Ray Bashford in Hong Kong. "We're willing to continue negotiations."

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 last month after Unocal had already agreed to be acquired by Chevron.

CNOOC's bid of $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 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 (search), 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.

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 Chevron stock and pay approximately $7.5 billion in cash, according to the joint statement issued by the companies.

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.

CNOOC Chairman and Chief Executive Fu Chengyu (search) contacted Williamson last year about his company's potential interest in an acquisition, according to a regulatory filing.

That news leaked out in January, which prompted Chevron's CEO to ask if Williamson was willing to consider a potential deal.

Unocal initially rebuffed Chevron but invited the company's participation after a third company, an unidentified foreign firm, began preliminary talks with Unocal.

The three potential bidders for Unocal continued talks with the company, submitting bids that were rejected by Unocal's board as too low.

Unocal eventually eliminated the third bidder and told CNOOC and Chevron that its board would make a final decision at an April 2 meeting.

Chevron submitted its final bid before the meeting. On the morning of April 2, CNOOC told Unocal it was not prepared to submit a final bid, leaving Chevron the lone contender until CNOOC made its offer in June.