Chinese playing the smart game again. After the US goes all the way fro Unocal in securing an Afghan pipelin the Chinese buy it from under the Neo-cons noses, serves them right for trusting Big Oil
BN 03:07 CNOOC May Make $20 Billion Cash Bid for Unocal (Update2)
(Adds analyst's comment in 13th paragraph.)
By Rob Stewart and Matthew Miller
June 21 (Bloomberg) -- CNOOC Ltd., China's largest offshore
oil and gas producer, may bid about $20 billion in cash for Unocal
Corp., the eighth-biggest U.S. oil company, trumping an offer from
Chevron Corp., people familiar with the plan said.
The Beijing-based company will offer about $71.50 a share, 10
percent higher than a bid made by San Ramon, California-based
Chevron on April 2, the people said, asking not to be identified.
It would be the world's second-largest cash offer for a company in
at least six years, data compiled by Bloomberg show.
China needs overseas energy assets to help fuel its $1.65
trillion annual economy, the world's fastest-growing major market.
Paying with borrowed funds would cost state-controlled CNOOC about
$1.2 billion in yearly interest payments, the same as Unocal's net
income in 2004.
``It's a relatively high price to pay,'' said Marc Faber, who
oversees about $300 million as managing director of Hong Kong-
based Marc Faber Ltd. ``The Chinese are willing to pay top dollar
for oil reserves and the purchase may not look so stupid in the
long term.''
The company may use some of its $3 billion in cash and borrow
the remainder from banks to finance the bid, the people said.
CNOOC will seek approval for a bid from its eight-member board as
soon as today, they said.
CNOOC's Chief Financial Officer Yang Hua declined to comment
today.
Risk
In March, the company's independent directors delayed a vote
on the issue and requested more information to address concerns an
acquisition carried too much risk in terms of strategy and
funding, they said.
Chevron is offering Unocal shareholders a combination of
0.7725 Chevron shares plus $16.25, or 1.03 Chevron shares or $65
in cash. Shares of Chevron last traded at $59.34 in the U.S. The
acquisition would boost its daily output by about 16 percent.
CNOOC needs to move quickly on its bid for El Segundo,
California-based Unocal because the U.S. Securities and Exchange
Commission is poised to approve the disclosure documents on
Chevron's bid. The Federal Trade Commission, the U.S. antitrust
regulator, approved Chevron's takeover plan on June 10.
The Chinese company's bid would have to be approved by U.S.
regulators amid concern about the control of Unocal's energy
assets shifting to China. Two Republican congressmen, Richard
Pombo and Duncan Hunter, on June 17 wrote to U.S. President George
-----------------------------=======------------------------------
Copyright (c) 2005, Bloomberg, L. P.
Page 2 of 5
W. Bush seeking a review of any bid by CNOOC for Unocal on
national-security concerns, the Asian Wall Street Journal reported
yesterday.
Politically Sensitive
``This is a politically sensitive issue here,'' said Michael
Cuggino, who oversees $360 million at Pacific Heights Asset
Management LLC in San Francisco, including Chevron stock. ``We're
talking about oil and this a time when there is a shortage of
oil.''
CNOOC indicated it would finance the acquisition through bank
debt and available cash, and attached proposal letters from
potential financing sources, according to a May 26 filing made by
Chevron to the U.S. Securities and Exchange Commission.
``Something of that size would be difficult for the company
to digest given its current balance sheet,'' said John Bailey, an
analyst at Standard & Poor's in Hong Kong. ``It depends on exactly
what they do and how they fund it. We're not privy to it at this
stage.''
Oil Prices
JPMorgan Chase & Co., Merrill Lynch & Co. and UBS AG managed
an $850 million sale of bonds convertible into CNOOC shares in
November, the largest such sale by a Chinese company to overseas
investors.
CNOOC is attempting to buy Unocal as crude oil rose to a
record of more than $59 a barrel in New York yesterday. Crude oil
for July delivery rose 90 cents, or 1.5 percent, to $59.37 a
barrel on the New York Mercantile Exchange, the highest closing
price since trading began in 1983. China, Asia's second-biggest
economy, is the world's second-largest user of oil after the U.S.
Goldman Sachs Group Inc. and JPMorgan are advising CNOOC on
the transaction. The New York-based investment banks would share
about $200 million in fees for a successful takeover of Unocal,
the people said.
Goldman spokesman Edward Naylor and JPMorgan spokeswoman
Megan Donald, both based in Hong Kong, declined to comment.
CNOOC's Chairman and Chief Executive Officer Fu Chengyu flew
to El Segundo, California to meet with Unocal executives on Dec.
26 and indicated the Chinese company would make a bid for the U.S.
oil producer, according to Chevron's regulatory filing.
U.S. Trip
That trip to the U.S. came five days after a board meeting at
Hong Kong-listed CNOOC on Hainan Island in southern China, at
which Fu hadn't raised the possibility of a purchase, the people
said.
-----------------------------
======------------------------------
Copyright (c) 2005, Bloomberg, L. P.
Page 3 of 5
Erwin Schurtenberger, a former Swiss ambassador to China,
quit as an independent director at the Chinese company from April
1 -- two days after a March 29 and 30 board meeting -- citing ill-
health. Kenneth Courtis, vice chairman of Goldman Sachs Group Inc.
in Asia, Evert Henkes, a former chief executive of Shell
Chemicals, and Sung Hong Chiu, a solicitor in Australia, remain on
the board.
Aloysius Tse, 57, a former partner at KPMG, was hired on June
8 to replace Schurtenberger, 65.
The record cash offer for a company was made by Unilever NA
as part of its $24 billion takeover of Bestfoods in 2000.
CNOOC would also have to pay Chevron a $500 million break up
fee, according to the regulatory filing made by Chevron, details
of which were confirmed by people familiar with the events.
``Chevron may get the break up fee,'' Cuggino said. ``It may
still put in a counter-offer. Why not?''
Shares Lag
Shares of CNOOC, unchanged this year, fell to HK$4.15 today,
giving the company a market value of about $22.5 billion. Unocal
shares gained 47 percent to $63.47 in the same period, giving it a
value of about $17.25 billion.
Shares of eight rivals to Unocal, including Woodside
Petroleum Ltd., Australia's second-biggest oil and gas producer,
and Marathon Oil Corp., the fourth-largest U.S. oil company, rose
by an average of 40 percent in 2005.
Unocal pumped the equivalent of 410,670 barrels of oil a day
last year worldwide. About 62 percent of Unocal's output is
natural gas, compared with 28 percent at Chevron.
CNOOC, which has missed its production and budget targets for
the past two years, said in February it plans to increase total
output to the equivalent of 160 million to 165 million barrels of
crude oil this year.
China's oil import costs rose 86 percent to $4.66 billion in
May because of higher prices and increased purchases to meet
soaring fuel demand. China's economy has averaged more than 9
percent annual growth during the past two decades.
CNOOC is about 71 percent owned by state-controlled China
National Offshore Oil Corp.
--With reporting by Loretta Ng in Hong Kong. Editors: Stewart,
Austin, Hannam, McDonald.
Story illustration: {883 HK <Equity> COMP D HSI <GO>} graphs
CNOOC's share performance against the benchmark Hang Seng Index.
{UCL US <Equity> ERN <GO>} shows an earnings profile on Unocal.
{TNI MNA NRG BN <GO>} lists Bloomberg News stories on mergers
and acquisition among energy-related companies.
{DTOP <GO>} lists the day's top Bloomberg News stories on
-----------------------------
=======------------------------------
Copyright (c) 2005, Bloomberg, L. P.
