As the bidding war heats up for Unocal Corp., shareholders on all sides of the courtship have to wonder whether the oil and gas company’s assets are really worth all those extra dollars.
Value, it appears, is in the eye of the beholder and the ever-escalating price of oil.
Based on Chevron Corp.’s slightly sweetened offer last week that added more cash to the deal, the value of Unocal’s assets continues to rise, despite analysts’ concerns that the bids are justified only if oil prices remain at historically high levels.
Chevron is now offering $17.4 billion, or $63 a share, which is still lower than CNOOC Ltd.’s higher bid of $18.5 billion, or $67 a share. Unocal’s board has already endorsed Chevron’s lower price and CNOOC officials said late last week that they have no plans to raise their offer.
As the numbers continue to rise, questions linger about the true value of Unocal’s large-scale oil and gas interests in the Gulf of Mexico, Azerbaijan, Myanmar and Thailand. A handful of analysts are quick to point out that just a year ago, neither company would have been willing to bid nearly $20 billion for the assets in a company long considered an industry laggard.
“This is the best job Unocal’s board has ever done for this company, which is extracting the highest price for shareholders,” said Fadel Gheit, an oil analyst with Oppenheimer & Co. “Had either of these companies come up with a lower bid last year, we wouldn’t be talking.”
Many analysts now see the deal tilting toward Chevron because of the $500 million break-up fee that Unocal would have to pay Chevron in the event the deal falls through. That’s the equivalent of roughly $2 per share, putting the bids within a stone’s throw of each other.
As of late last week, both companies insisted they would not be raising their offer, a nod towards trying to keep the purchase price in sync with the value of Unocal. But before upping their offer, Chevron officials had indicated they wouldn’t budge. With Unocal’s shareholders meeting on Aug. 10 to vote on the Chevron deal, it’s not inconceivable that the numbers could be upped again.
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The full story
is available in the July 25 edition of the Los Angeles Business Journal.
