Unocal shareholders approve Chevron takeover

/ Source: staff and news service reports

A bidding war that pitted U.S. and Chinese oil powerhouses against each other and stemmed fierce political opposition ended Wednesday.

Shareholders in oil and gas producer Unocal gave preliminary approval to an offer to be acquired by Chevron Corp. in a deal worth more than $17 billion.

Chinese producer CNOOC Ltd. last week dropped its unsolicited $18.5 billion bid in the face of severe political opposition.

The vote ends months of uncertainty sparked by an effort by the Chinese giant hoping to secure energy resources by wresting Unocal from Chevron.

The Unocal board approved the Chevron bid after rejecting a more lucrative offer from Chinese oil and gas company CNOOC Ltd. That offer was overshadowed by regulatory concerns and fierce opposition from members of Congress, who cited the fact that CNOOC is 70 percent owned by China’s Communist government.

Chevron first made its stock and cash bid in April, capping five months of discussions between El Segundo-based Unocal and three other potential bidders, including CNOOC and a third, unidentified foreign oil company. Although CNOOC was the first company to approach Unocal about a buyout, the company’s board failed to make a formal offer by Unocal’s April deadline.

Chevron, based in San Ramon, initially offered Unocal shareholders a combination cash and stock bid of about $61 per share. That offer was endorsed by Unocal’s board and cleared all regulatory hurdles.

CNOOC finally made its all-cash offer of $67 per share in June. The bid sparked instant opposition from members of Congress, who demanded a lengthy regulatory review and introduced legislation to place even more hurdles in CNOOC’s way.

Hoping to allay fears about its bid, CNOOC agreed to sell Unocal’s U.S. assets and promised to retain all of Unocal’s workers — something that Chevron is unlikely to do. CNOOC also argued that its bid was purely commercial and not connected in any way with the Chinese government.

That argument held little sway on Capitol Hill. Lawmakers even fretted that Unocal’s oil drilling might have military applications that could someday be used against the United States, and that CNOOC’s ownership structure helped it secure favorable financing terms unavailable to Chevron.

Despite the prospect of six months or more of uncertain regulatory haggling, Unocal’s board nearly approved the CNOOC offer until Chevron increased its bid last month to $63 per share, according to regulatory filings.

The value of that offer has risen over the past few weeks along with Chevron’s stock price.

CNOOC had been willing to raise its all-cash bid even further, but Unocal balked at the conditions, which included Unocal publicly endorsing the CNOOC offer and shouldering the $500 million breakup fee that would be owed to Chevron.

Earlier this month, CNOOC withdrew its bid, citing “unprecedented political opposition.”

“This political environment has made it very difficult for us to accurately assess our chance of success, creating a level of uncertainty that presents an unacceptable risk to our ability to secure this transaction,” the company said.