Unocal Wins ISS Support for Merger With Chevron
Unocal Corporation has today said that Institutional Shareholder Services (ISS) has recommended that Unocal stockholders vote for the merger with Chevron Corporation at the special meeting of Unocal stockholders scheduled for 10 August 2005.
In recommending that Unocal stockholders vote for the Chevron merger, ISS stated that it had taken into account the issues related to the competing proposal from China National Offshore Oil Company Ltd. (CNOOC).
In its 1 August 2005, report, ISS concluded after a [thorough] review of the terms of the transaction that the CNOOC bid "is not currently sufficient to compensate Unocal shareholders for the higher risk of the CNOOC transaction," and believes "that the Chevron merger agreement currently warrants shareholder support."
ISS said that the revised Chevron offer currently represents an approximate 32% premium over the trading price 60 days prior to the April announcement of the original bid and a 55% premium over Unocal's trading price on 5 January 2005, the day prior to a media report of a potential CNOOC bid for Unocal. The transaction, ISS said, will "allow Unocal shareholders to both capture some degree of certain value today and, in addition, to participate in the value created by the combined company going forward."
In reviewing the offers, ISS said it applied the "bird in the hand" theory to compare the value of competing bids. "The $64.00 Chevron bid is for all intents and purposes 'certain' (shareholder approval being the primary remaining condition to close). In contrast, the $67.00 CNOOC bid is highly uncertain due to US and Hong Kong regulatory issues and US political opposition in some quarters."
Commenting on the regulatory hurdles facing a CNOOC transaction, ISS noted, "Assuming an incremental additional six months to close the CNOOC deal, and an investor cost of capital of 5%, the $67.00 offer can be discounted to approximately $65.38 per share."
ISS continued, "The Unocal Board concluded that the approximate $3.00 per share spread between the revised Chevron bid and the CNOOC bid did not justify the assumption by Unocal shareholders of the risks associated with the CNOOC offer. We find this conclusion to be a reasonable application of business judgment by the board."
"We are extremely pleased that ISS recognizes that the merger with Chevron is in the best interest of Unocal stockholders," said Charles R. Williamson, Unocal chairman and chief executive officer. "ISS acknowledged the premium offered by the Chevron bid and the process the Unocal board undertook to endorse that bid.
"We agree with ISS that the comparative certainties and reduced risks associated with completion of the Chevron merger make a compelling argument for support of the transaction. Unocal and its board continue to urge all stockholders to follow ISS' recommendation and vote for the merger with Chevron."
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China National Offshore Oil Corporation (CNOOC)
ISS (Institutional Shareholder Services)
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