A major investment advisory firm on Monday recommended that Unocal Corp's shareholders accept Chevron Corp's US$17.5 billion takeover bid instead of entangling themselves in the political turmoil facing a slightly higher offer from China's government-owned CNOOC Ltd.
The endorsement of Institutional Shareholder Services, or ISS, provides San Ramon-based Chevron and El Segundo-based Unocal with a little more firepower as they meet with investors this week to rally support for their proposed marriage. Unocal's board has already voted in favor of the Chevron offer.
Many of the nation's largest institutional investors, including public pension funds and mutual funds, rely on ISS's opinions to help them decide how to vote on difficult decisions that come up for shareholder votes. Another large shareholder advisory service, Glass, Lewis & Co, expects to distribute its analysis of Chevron's bid later this week.
A shareholder vote on the Chevron bid is scheduled for an Aug. 10 meeting in Los Angeles.
Unocal chairman Charles Williamson said he was "extremely pleased" to win ISS's support. A CNOOC spokesman in New York didn't immediately return calls on Monday.
ISS's blessing of the Chevron's stock-and-cash offer, valued at US$63.71 per share Monday, represents another blow to CNOOC and its all-cash bid of US$67 per share, or US$18.4 billion.
CNOOC, part of the China National Offshore Oil Corp (
The political backlash is the main reason that ISS sided with Unocal's board in deciding CNOOC's current bid isn't worth the uncertainty looming over it.
ISS estimated it will take six to nine months for CNOOC's bid to navigate through all the political and regulatory hurdles in the US and China, with no guarantee that the deal would ever be completed. If Unocal's shareholders give their approval, Chevron could close its deal before the end of next week.
The true value of CNOOC's bid is US$65.38 per share, assuming the offer remains in limbo for the next six months, ISS concluded. The calculation is based on an "opportunity cost" of US$1.62 per share that Unocal shareholders would absorb for rejecting Chevron's "bird-in-hand" bid to pursue a potentially larger payoff next year.
If the political wrangling lasts even longer than expected, ISS warned that the CNOOC bid could unravel completely, "with Unocal shareholders left holding the bag."
To compensate Unocal shareholders for the added risks, ISS suggested CNOOC will have to pay at least 10 percent more than Chevron's bid. Using that scenario, CNOOC would have to raise its bid to around US$70 per share -- a price that some industry analysts also agree would probably be too tempting for Unocal to pass up.
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