Chevron's Unocal offer clears SEC hurdle

The U.S. government on Wednesday gave its final clearance to Chevron Corp.’s offer to acquire Unocal Corp., leaving China’s CNOOC Ltd. just six weeks to convince Unocal’s board its own bid for the California oil and gas producer is superior.

Chevron and Unocal set an Aug. 10 vote on their $16.3 billion, cash-and-stock deal after the U.S. Securities and Exchange Commission approved the proposed transaction.

That deadline put pressure on CNOOC and its $18.5 billion, all-cash bid to acquire Unocal, which has sparked concerns from U.S. lawmakers about national security and triggered heated rhetoric among the companies and the Chinese government.

CNOOC said it was confident that its offer was superior and that it had a chance to succeed.

U.S. discontent over a $160 billion trade deficit with China and jitters about China’s growing military power has manifested itself as a backlash against the offer from politicians, who say it could threaten national security and U.S. access to adequate energy supplies.

Many investors have said that the CNOOC offer is more attractive financially, but that the Chevron bid offers more certainty of being completed in a timely fashion.

“This is Chevron’s best strategy. They have to try and push this thing through as fast as they can and hope CNOOC can’t make any progress on the regulatory front,” said Jason Putman, an analyst at Victory Capital Management, which owns 7 million Unocal shares.

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Executives of CNOOC, majority-owned by the Chinese government, and Unocal representatives are meeting this week in New York to discuss a proposed deal.

“We remain confident in both the superiority of our offer and its chances of succeeding,” CNOOC said in a statement.

Unocal said it continued to back Chevron’s takeover offer even as it meets with CNOOC to discuss the rival bid. Unocal said it would disclose the board’s stance on the CNOOC bid before shareholders vote on the Chevron deal in August.

“Because the CNOOC proposal is relatively new and does not yet reflect a binding merger agreement, we will need to engage with CNOOC over the next few weeks concerning a number of issues in order to understand if it will be possible to reach a satisfactory agreement,” Unocal Chairman and Chief Executive Chuck Williamson said in a letter to employees. A copy of the letter was included in a regulatory filing.

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Chevron can require Unocal to hold a shareholder vote on its deal even in the face of a competing takeover bid. If shareholders approve the Chevron deal, Unocal said it expects the merger to close “almost immediately or within a few days, making the CNOOC offer moot.”

Unocal said it will press ahead with integration plans with Chevron and the companies aim to announce some management positions for the combined company within the next few days.

Open to review
From the start of its offer CNOOC has said it would welcome a review of its proposal by a government committee that examines bids by foreign companies for U.S. corporations, in cases where there are national security concerns.

But that review can not start until there is an actual deal in place, and a growing number of elected officials oppose that ever happening.

On Tuesday Rep. Joe Barton, a Texas Republican who chairs the House Energy and Commerce Committee, released a letter to U.S. President George W. Bush calling on him to block any CNOOC-Unocal deal as a “clear threat” to national security.

For its part the Chinese government has firmly denied any political intentions in the bid, though analysts on both sides of the Pacific Ocean concur that the offer, and the opposition in Washington, are largely about energy security and the fuel for future economic growth.

“I’m not sure if this will seal the deal or not ... It is still going to be a long, drawn-out affair,” said Brian Hicks, co-manager of the U.S. Global Resources Fund, which owns 60,000 CNOOC shares.

A long and drawn-out process is exactly what Chevron has been working to avoid, however. Though it originally planned a vote on the deal sometime in the third quarter, once it became clear that CNOOC was leaning toward making a bid Chevron said it was pushing for a vote in early August.