The Chinese National Offshore Oil Company (CNOOC) and Chevron battle for the Unocal oil company. Chevron thought they had a done deal back in April when they made an offer of $61.24 a share or roughly $16.1 billion in cash and stocks. This week CNOOC made a solid offer of $18.5 billion in cool cash but if Unocal does decide to entertain CNOOC’s offer, whoa boy there’s gonna be a lot of hoops to jump through.
Right now, China leads the world in manufacturing, period. They’re recently taken to purchasing American companies like Maytag. In that respect, this is just another corporate merger and China’s embracing the capitalism game and they’re doing quite well at it. The problem is they’re messing with the energy business now and that’s got folks in Washington a bit riled.
Observers say Chevron would be the best deal politically for Unocal and the Chevron deal has already been in the works for a couple of months. CNOOC is still working to secure the bid and Moody’s, Fitch’s and S&P all say this will tax CNOOC’s assets to the limit because they will be borrowing $16 billion to put this deal together. That’s as much the total offer of the Chevron deal.
CNOOC chief Fu Chengyu seeks to reassure the U.S. government and many others that this deal is a legitimate business deal and should be treated as such. Mergers and acquisitions happen quite frequently and CNOOC maintains this is no different than that.
Another major point in this feature besides national security is jobs. Chevron has said they will lay off most of the Unocal workers in this deal. Unocal has around 6600 workers. Chengyu said in the letter to Unocal they would keep most of those employees right where they are. That combined with the cash option they’ve plugged into this will make difficult for the stockholders to pass up.
This deal is still off in the distance. Officially, Unocal is still recommending Chevron to the stockholders while they evaluate the CNOOC offer. The feds want deep investigations into the whole thing. What happens next depends on Unocal.
John Stith is a staff writer for Murdok covering technology and business.
