In a letter to Unocal Corp. employees Wednesday concerning the competing acquisition offers from Chevron Corp. and China National Offshore Oil Co. (CNOOC), CEO Chuck Williamson said that “at this time, our board continues to recommend approval of the Chevron proposal.” However, he noted that Unocal’s management team “must evaluate the competing China National Offshore Oil Co. (CNOOC) proposal” so that the company’s shareholders “understand the comparative merits of the two offers.”

The letter, which was filed with the Securities and Exchange Commission (SEC), said Unocal’s board “will need to understand the risks and value associated with both proposals in order to decide whether to withdraw its current recommendation for the Chevron proposal.” Chevron has offered Unocal $16.3 billion in a cash-and-stock deal, while CNOOC has offered $18.5 billion in cash.

Earlier on Wednesday, Chevron’s acquisition of Unocal was approved by the SEC, the final regulatory step to be taken before shareholders may consider the merger. A vote on the merger is scheduled for Aug. 10. The SEC also declared effective Chevron’s Form S-4 documents and amendments, which were filed on May 26. These documents contain a proxy statement for a special meeting of Unocal shareholders. Unocal set Wednesday (June 29) as the record date for the vote.

“Because the CNOOC proposal is relatively new and does not yet reflect a binding merger agreement, we will need to engage with CNOOC over the next few weeks concerning a number of issues in order to understand if it will be possible to reach a satisfactory agreement,” Williamson wrote. “We went through a similar process with Chevron before announcing our agreement on April 4th.”

The CEO noted that under terms of the merger agreement with Chevron, Unocal was prohibited from discussing competing proposals without its permission, except under limited circumstances. “Chevron waived that prohibition last week, allowing us to negotiate with CNOOC to evaluate their proposal. Chevron is intent on successfully concluding this transaction, but they also understand that our stockholders will require additional information in order to adequately evaluate and compare the CNOOC proposal. That means that during the next few weeks, we will continue to work with Chevron on integration matters while our management team and external advisors meet with CNOOC officials to more fully understand their proposal.”

Following the SEC approval for the merger, Chevron CEO Dave O’Reilly said earlier Wednesday that “the successful completion of U.S. regulatory requirements demonstrates that our transaction can be brought to a quick and successful conclusion. The Chevron-Unocal agreement presents a compelling, long-term investment opportunity for stockholders. Chevron has a proven track record of creating stockholder value from past mergers and acquisitions.”

Although the CNOOC offer is for more money, some analysts believe that Chevron will prevail because its offer would most likely close sooner. The offer by CNOOC, if accepted by Unocal, is expected to undergo a thorough federal review because of national security concerns by several members of Congress (see Daily GPI, June 29).

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