CNOOC to Drop Unocal Bid?

It's probably over, says advisor

BEIJING China National Offshore Oil Corp. Ltd. is poised to decide this week on whether to abandon its bid for U.S. oil producer Unocal Corp., and appears likely to do so, say several people close to the Chinese company, according to a report in The Wall Street Journal.

While these people won't rule out the possibility CNOOC will sweeten its $18.5 billion cash bid in an attempt to outmaneuver a competing offer by Chevron Corp., they say there is a far greater likelihood that CNOOC will abandon its takeover attempt, which has been dogged by opposition [image-nocss] in Congress. "The odds right now don't look good," an adviser to CNOOC, China's largest offshore oil and natural-gas producer, told WSJ. "Realistically speaking, it's probably over."

Chevron already has struck a deal with Unocal's board to buy the company for $17.5 billion in cash and Chevron stock. Unless CNOOC raises its bid, Unocal shareholders are likely to approve the Chevron deal in a vote scheduled for Aug. 10. That is because CNOOC's offer, while nominally higher than Chevron's, is viewed by many institutional investors as less valuable because of its political liabilities. Congressional opposition and regulatory delays mean CNOOC would need at least several months longer than Chevron to close a deal, and Unocal investors would want to be compensated for that time.

The Chinese company's chairman and chief executive, Fu Chengyu, briefed fellow CNOOC board members last Thursday. No decision was made on whether to proceed with the bid, according to the WSJ report, and directors agreed it would be worth waiting until this week before making a decision, according to a person close to CNOOC.

CNOOC's advisers have presented Fu with scenarios for a new bid exceeding $70 per Unocal share, people familiar with the matter said. CNOOC currently is offering $67 a share.