Interesting development........China is starting to flex its capitalistic muscles.
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Buysiders Eye CNOOC Bid For Unocal
By Kathie O'Donnell, Dow Jones
BOSTON (Dow Jones) -- If Holland & Co. Chairman Mike Holland had to handicap it, he'd pick Chevron Corp. to beat CNOOC in the race to acquire California oil and gas producer Unocal Corp. -- though he hopes U.S. politics won't be the deciding factor.
CNOOC (CEO), China's biggest offshore oil company, announced a formal bid for Unocal late Wednesday, offering $18.5 billion. That's about $1.5 billion higher than the bid by Chevron (CVX), which agreed April 4 to buy Unocal (UCL) in a deal Chevron had hoped to seal within the next several weeks. Read full story.
"I think Chevron's going to win because I think there will be some economic consequence to the regulatory hurdles that CNOOC has to do," Holland said, adding that "Chevron has left room -- no matter what they say -- for a bump in the bid."
Holland, whose New York-based firm oversees more than $5 billion and owns Chevron shares, said one thing he doesn't want to see is CNOOC's bid's scuttled by Washington politicians who erect barriers to free trade.
"That would be a very short-sighted thing for us, hugely short-sighted," he said. "I don't look to Congress particularly to be a defender of Chevron's bid."
Michael Cuggino, president and portfolio manager at San Francisco-based Permanent Portfolio Family of Funds, whose assets total about $370 million, also picked Chevron as the likely winner.
"The ultimate bid that came out yesterday was not the home run that I think Unocal investors really needed to give CNOOC a clear advantage over Chevron's bid," said Cuggino, whose firm owns Chevron shares.
CNOOC, which is state-run by China, would expose Unocal shareholders to too much political risk, he said.
"There's not enough transparency in China right now, property rights are not as developed," Cuggino said, adding that if he were a Unocal shareholder, which he isn't, he'd want to cash out if CNOOC prevailed. "I would have no desire to hold CNOOC."
The China risk aside, CNOOC's bid would also face a "regulatory battle" in the United States, he said.
"The environment is not good right now for a state-run Chinese company to come in and try to buy off what some would deem strategic assets of the United States," Cuggino said. "There was a hearing this morning in Washington on the valuation of the yuan versus the dollar, there are some serious questions being raised there."
While Cuggino would like the U.S. government to stay out of the process, "the reality is oil is in short supply around the world right now, Unocal is a United States company and we're not talking about $20 oil, we're talking about $60 oil, " he said.
Randall Grace, an analyst at Chilton Capital Management, said Chevron may not have to better CNOOC's bid to get Unocal. Houston-based Chilton, which manages about $260 million, holds Chevron shares.
"The China bid faces political pressure from Congress, it's unfriendly and unsolicited," Grace said, adding that he believes the stock portion of Chevron's bid would be non-taxable. The China bid is cash only at $67 a share.
Acquiring Unocal would give Chevron increased access to resources in one of the world's fastest growing areas, the analyst said.
"It (would give) them a dominant pan-Asian production footprint from Azerbaijan and Kazakhstan in the Caspian Sea to Indonesia, Thailand and the Pacific Rim," Grace said.
Lewis Ropp, an analyst at Barrow Hanley Mewhinney & Strauss, a Dallas-based firm managing about $45 billion, said it's likely that Chevron will make a " token increase" in its bid to take some pressure off Unocal's board.
"The offer from CNOOC confirms the valuation of Unocal, which was a question in a lot of shareholders' minds," Ropp said. "They thought that Chevron was perhaps over-paying for the assets."
While Chevron left itself some room to increase its bid, the analyst said the bid wasn't too low given the high percentage of undeveloped reserves Unocal has on its books.
"About half of those reserves are undeveloped," Ropp said. "There's going to be (a) significant cash requirement to convert those proved undeveloped reserves into proved developed producing reserves."
Dow Jones Newswires 06-23-051822ET |
