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CNOOC bids US$67 per share for
Unocal
BEIJING - China
National Offshore Oil Corporation (CNOOC) Ltd,
China's largest offshore oil and gas producer,
announced early June 23 that it has proposed a
merger with Unocal Corporation, offering US$67 in
cash per Unocal share. The offer values Unocal at
about US$18.5 billion, representing a premium for
Unocal's shareholders of about $1.5 billion over
the value of Chevron Corporation's offer, based on
closing prices on the New York Stock Exchange June
22, said CNOOC Ltd. If successful, it would be the
biggest-ever overseas acquisition for a Chinese
company.
In a letter sent to the Chairman
of Unocal, CNOOC Ltd Chairman and Chief Executive
Officer Fu Chengyu described the approach as
"friendly", saying that the company is seeking a
consensual transaction with Unocal. The CNOOC
proposal is being submitted in accordance with the
sale proceedings initiated by Unocal.
California-based Chevron announced on
April 4 that it had reached an acquisition
agreement with Unocal based on its cash and stock
offer. However, in a message offered to the Hong
Kong Stock Exchange on June 7, CNOOC Ltd said that
it was continuing to examine its options with
respect to Unocal, including a possible offer for
Unocal.
The combined company would have a
leading position in the Asian energy market and an
expanded role in the development of China's
liquefied natural gas (LNG) market, said Fu.
According to CNOOC, the combination would more
than double CNOOC oil and gas production and
increase its reserves by nearly 80% to about 4
billion barrels of oil equivalent. Approximately
70% of Unocal's current proved oil and gas
reserves are in Asia and the Caspian region. It is
expected that the merged company would also have
an improved balance between oil and gas
reserves,with total reserves of approximately 53%
oil and 47% natural gas.
CNOOC said it
would borrow $16 billion from its parent company
and banks to finance the offer. It secured
bridging loans totaling $3 billion from Goldman
Sachs Group Inc and JP Morgan Chase & Co and
$6 billion from the Industrial and Commercial Bank
of China. CNOOC will borrow $7 billion from its
parent, China National Offshore Oil Corp. If the
bid is successful, CNOOC would have to assume net
debt from Unocal and pay a $500 million break-up
fee to Chevron.
Established in Hong Kong
in August 1999, CNOOC was listed on the New York
Stock Exchange and the Stock Exchange of Hong Kong
and was admitted as a constituent stock of the
Hang Seng Index in July 2001. As China's
third-largest oil and gas producer, the CNOOC
Group mainly engages in offshore oil and natural
gas exploration, development, production and
sales.
Fu said in a press release, "This
friendly, all-cash proposal is a superior offer
for Unocal shareholders. The deal is fully
financed, subject to customary closing conditions,
and priced in line with market values for
comparable businesses. We hope to be able to enter
into a dialogue with Unocal soon and reach
agreement on a consensual transaction For our
shareholders, there is a strong business rationale
for the combination, as CNOOC Limited and Unocal
would form one of the leading international
E&P (exploration and production) companies and
become one of the premier players in the Asian
energy market. It would rebalance [CNOOC's]
portfolio to include more natural gas reserves and
strengthen our regional presence by combining with
Unocal's complementary Asian asset base. I am
confident that the merger will increase
shareholder value. We also expect this transaction
to ultimately improve the company's financial
status and that we will maintain a strong,
investment-grade credit rating."
CNOOC's commitments
regarding Unocal's US assets
CNOOC
Limited is committed to fully integrating Unocal's
strong management team and workforce into the
combined company. The transaction will not
adversely affect the US oil and gas market since
Unocal's US oil and gas production will continue
to be sold in the US. In addition, Unocal's US oil
and gas production accounts for less than 1% of
total US oil and gas consumption. In connection
with this offer, CNOOC Limited has provided the
following assurances:
CNOOC Limited is willing to continue Unocal's
practice of selling and marketing all or
substantially all of the oil and gas produced from
Unocal's US properties in US markets.
CNOOC Limited will seek to retain
substantially all Unocal employees, including
those in the US. This is in contrast to the
existing Chevron proposal; Chevron has already
announced plans to extract hundreds of millions of
dollars of cost savings from the merger, including
from employee layoffs.
CNOOC Limited hopes and will endeavor to
persuade members of Unocal's executive and
operational management to join the management team
of the combined company.
CNOOC Limited will accept and agree to the
terms of Unocal's recent FTC settlement relating
to its patent rights in reformulated gasoline.
CNOOC Limited is confident that it will obtain
Exon-Florio approval [1]. To this end, CNOOC
Limited is willing to divest or take other actions
with respect to any of Unocal's non-E&P assets
in North America to the extent such divestitures
and actions would not give rise to a material
adverse effect on Unocal, including considering
special management arrangements for Unocal's US
non-controlling, minority pipeline interests and
its storage assets.
Merger
financing
The financing is structured to
ensure that the company will retain a strong
balance sheet and maintain future financial
flexibility. The following sources of financing
have been arranged:
CNOOC Limited's cash resources of more than $3
billion.
Bridge loans provided by Goldman Sachs and
JPMorgan totaling $3 billion, which are expected
to be replaced by permanent debt financing in the
form of bonds at or shortly after completion of
the merger.
Bridge loans provided by the Industrial and
Commercial Bank of China (ICBC) in the amount of
$6 billion, which are expected to be replaced by
permanent debt financing in the form of term loans
at or shortly after completion of the merger.
A long-term, subordinated loan provided by
CNOOC Limited's majority shareholder, China
National Offshore Oil Corporation, of $4.5
billion, which is expected to receive significant
equity credit for credit ratings purposes.
A subordinated bridge loan provided by CNOOC
Limited's majority shareholder of $2.5 billion,
which is expected to be refinanced with equity
within two years.
CNOOC Limited has
received commitment letters from Goldman Sachs,
JPMorgan, ICBC and CNOOC Limited's majority
shareholders for the financing noted above.
Strengths and opportunities
CNOOC Limited believes that the merged group would
benefit greatly from the companies' complementary
strengths. First, a new platform for growth would
be created. The combination would more than double
CNOOC Limited's production and increase reserves
by nearly 80%. CNOOC Limited believes that Unocal
has an attractive portfolio of development
projects with a substantial growth profile.
Second, the combined firms would become an
Asia-focused energy company; both companies are
already primarily Asian businesses, and together,
they will be a leader in one of the fastest
growing regions in the world. It is estimated that
85% of the combined reserves of the companies are
located in Asia and the Caspian region.
Third, the merger would form a leading
regional gas business: 60% of Unocal's reserves
are natural gas (mostly in Asia). CNOOC Limited
currently has 35% of its reserves in gas; it is
estimated that the combined company will have a
more balanced portfolio with reserves of 53% oil
and 47% natural gas. CNOOC Limited believes that
an improved oil and gas balance will reduce its
exposure to cyclical shifts in commodity prices.
Also, CNOOC Limited believes that China's LNG
market potential will allow it to accelerate the
exploration and development of gas resources and
position it as a long-term supplier to the Bontang
LNG plant. This is an important part of the
environmental drive to promote cleaner burning
fuels.
Fourth, CNOOC Limited expects
to generate considerable synergies from the
optimization of the combined exploration and
capital investment programs of the two companies.
Lastly, the combined firms would have proven
management and world-class technical expertise.
CNOOC Limited believes that Unocal has an
excellent operational management team, and CNOOC
Limited can also draw on Unocal's deepwater
drilling and production expertise.
[1]
This refers to the "Exon-Florio" provision of the
US' Omnibus Trade and Competitiveness Act of 1988,
which established a procedure for the US president
to investigate the national security effects of
proposed mergers, acquisitions, and takeovers of
US companies by foreign interests. If there is
credible evidence that the foreign interest
exercising control might take action that
threatens to impair national security, the
president may suspend or prohibit the transaction.
(Asia Pulse) |
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