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Unocal says it almost accepted China bid

A major shareholder of Unocal Corp. has urged the company's board to reconsider its endorsement of a takeover bid by Chevron Corp. over a higher offer by a Chinese state-owned oil company, saying the company may be breaking the law by not considering the higher bid.
/ Source: The Associated Press

Unocal Corp. was ready to approve a merger agreement with CNOOC Ltd. had the Chinese state-owned oil company sufficiently raised its $67 a share bid, Unocal said.

The companies “substantially completed” a draft merger agreement by mid-July that would have displaced Chevron Corp.’s bid for Unocal, the El Segundo, Calif.-based oil company said in a proxy statement filed Monday with the Securities and Exchange Commission.

Unocal Chief Executive Charles Williamson told CNOOC Chief Executive Fu Chengyu on July 15 that a deal likely could be made if he raised the price.

“Mr. Williamson contacted Mr. Fu and again requested that CNOOC increase its price,” Unocal said in the proxy, which detailed the mid-July back and forth negotiations between Unocal, CNOOC and San Ramon, Calif.-based Chevron. “Mr. Williamson also observed to Mr. Fu that a sufficiently large increase in the proposed consideration could likely result in a conclusion of the process, and he urged Mr. Fu to make his best offer.”

By the time those statements were made, Unocal’s board had already concluded that it would have to withdraw its recommendation of the lower Chevron bid if neither company raised its offer. The filing doesn’t say how much Unocal hoped CNOOC would bid.

CNOOC refused to budge, unless Unocal paid the costs of terminating the Chevron deal and lobbied for the deal in Congress — steps Unocal said it couldn’t take.

In the end, Chevron raised its cash-and-stock offer to about $63 a share from around $60.50. On July 20, Unocal’s board accepted Chevron’s higher offer and recommended shareholders approve it.

Unocal insisted CNOOC raise its already higher, all-cash offer to compensate for risks of delays seeking regulatory approval and concerns about pursuing claims against CNOOC and its Chinese owners. Those concerns were nearly worked out, Unocal said in the proxy.

“By July 17, Unocal’s and CNOOC’s advisors had substantially completed negotiation of the key documentation relating to the potential CNOOC transaction,” the proxy said.