Chevron Corp. has increased its acquisition offer for Unocal to about $63 a share and Unocal’s board is supporting that offer over the competing bid of the China National Offshore Oil Corp. Here are the previous posts on the bidding for Unocal.
Inasmuch as Chevron’s initial offer was valued yesterday at about $60.51 a share, Chevron increased its offer before a Unocal board meeting yesterday by about $2.50 a share in cash, bringing its total offer for Unocal to about $17.5 billion. Chevron increased the cash portion of the bid to 40% from 25% and raised the per-share value of the cash to $69 from $65, besting Cnooc’s offer of $67 a share. The ratio of Chevron stock to Unocal stock in the bid has not changed. Chevron can afford to toss in the extra cash into the bid as it currently has about $11 billion in cash reserves and is adding to that amount by about $1 billion a quarter as a result of high energy prices.
Meanwhile, Cnooc’s board has already authorized an increased offer by as much as two dollars a share, but it remains unclear whether Cnooc will make that play. Given the Unocal board’s endorsement of the modified Chevron bid, and the political and regulatory obstacles confronting its bid, Cnooc may elect to fold at this point.
Interestingly, investors did not react all that well when Chevron announced that it had won the bidding for Unocal in April as the price of Chevron’s stock declined out of out of concern that Chevron was buying at a peak price was ignoring financial returns in favor of increasing oil and gas reserves. However, since that time, energy prices have continued to climb and there is now greater market consensus that such prices are likely to be sustained over the long term.