July 20, 2005

Unocal Picks Chevron, Rejects CNOOC (for now)

Filed under: Business Moves,Taxes & Government — Tom @ 6:40 pm

It’s never over ’til it’s over, as Yogi Berra used to say, but Unocal has for the moment cast its lot with Chevron (link requires registration).

Rival bidder, CNOOC, 70% owned by the Chinese government, has not thrown in the towel:

CNOOC said its $67 a share offer remains in effect and regretted that Unocal had not embraced its offer. It said it continued to monitor the situation actively.

Unocal shares closed down 3 cents, or 0.05 percent, to $64.96 a share — above Chevron’s offer price — suggesting the market thinks that a bidding war is on the cards.

A person familiar with the matter said CNOOC expected a higher Chevron bid and was reviewing options on how to react.

Among analysts, Chevron remains the favorite to win Unocal, whose board has favored its U.S. rival’s bid partly due to concern U.S. lawmakers might reject the CNOOC deal on national security grounds or the deal may be stuck in long review process. It recommended shareholders accept the sweetened offer at a shareholders’ meeting already scheduled for Aug. 10.

“We’re still making the bet that Chevron will prevail,” Fulcrum Global Partners analyst Duane Grubert said. “The politics against the Chinese bid are so severe.”

I’ll say. When a senior general with the principal owner of the rival bidder threatens to nuke your country’s cities, that can have an effect on things.

Flashback: BizzyBlog has opposed CNOOC’s takeover attempt from the start, and wonders why so-called market economists would be okay with a foreign government effectively nationalizing a domestic oil company when they’d go crazy if our government tried to do the same thing.

UPDATE: It also looks like a Chinese company won’t be buying Maytag (reading beyond first two paragraphs requires paid subscription).

JULY 21 UPDATE: The Chinese announced a very modest 2.1% currency revaluation. There are surely many factors that influenced this decision, but to me the timing, in the midst of CNOOC-Unocal, shows how government-controlled enterprises can leverage their governments to manipulate deal negotiations. So there’s one more reason why acquisitions by state-controlled enterprises, especially foreign ones, should not be allowed to happen. FURTHER UPDATE: Larry Kudlow is especially unhappy with the currency-manipulation abilities the Chinese have just given themselves.


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