Chevron approves Unocal talks with CNOOC

Loretta Ng

Friday, June 24, 2005 | 9:45 a.m.

Chevron Corp. lifted a ban on negotiations between its takeover target Unocal Corp. and rival bidder CNOOC Ltd. of China, which made a higher $18.5 billion cash offer Thursday.

Unocal may have talks with CNOOC, China's largest offshore oil and natural-gas producer, until the U.S. company's shareholders vote on Chevron's cash and shares takeover plan, El Segundo, Calif.-based Unocal said in a statement. The date of the shareholder meeting has not been set.

"We're in the early innings of a long game here," said Michael Cuggino, president of Pacific Heights Asset Management LLC in San Francisco, who helps oversee $360 million in investments, including Chevron shares. "The noise from Chevron is such that they believe their offer is good as it is and they believe that they're going to complete it in their own terms."

CNOOC's higher bid faces opposition from some U.S. lawmakers on national security grounds. Chevron, which said its proposed takeover is close to gaining regulatory approval, may have to increase its $16.45 billion cash-and-stock bid for Unocal to fend off the Chinese company.

"It is pretty likely we'll see a better bid from Chevron," John Leiviska, who helps manage $17 billion at Advantus Capital Management Inc. in St. Paul, Minn., including Unocal and Chevron shares, said yesterday. "The Chinese will go as far as they have to go and bid very aggressively to win this."

Unocal today said its board's recommendation in favor of the agreement with Chevron stands.

Still, "CNOOC's bid is much higher than Chevron's so Unocal has to give it the full attention," Cuggino at Pacific Heights said.

CNOOC has enlisted Enron Corp.'s former chief spokesman to counter public concerns about the company's bid, underscoring CNOOC's recognition that it must wage a public relations campaign to allay concerns among members of Congress that its purchase of Unocal would harm U.S. national interests.

Mark Palmer, a managing director of Public Strategies Inc. in Austin, Texas, worked for Enron from 1996 to 2004. Palmer, who is part of a team of recently hired CNOOC advisers, wasted no time yesterday in touting the benefits of the bid, saying the Hong Kong-based company's all-cash offer is "clearly economically superior" to San Ramon, Calif.-based Chevron Corp.'s cash-and-stock bid and would preserve American jobs.

CNOOC's Chief Financial Officer Yang Hua today said he is in the meeting and declined to comment. The Beijing-based company said yesterday it is proposing to engage in "confidential, preliminary discussions" with Unocal.