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Chevron Ups the Ante in Unocal Deal

NEW YORK -- Chevron sweetened its offer for Unocal late Tuesday in an 11th-hour move to thwart a rival offer from CNOOC, a government-backed Chinese oil company, executives close to the negotiations said.

The New York Times reports that Unocal's board voted to accept Chevron's increased offer worth $17 billion, or $63 per share in cash and stock, and rejected a still higher all-cash offer from CNOOC worth $67 per share as too politically risky, the executives said.

The decision by Unocal's board could end the takeover battle that has stirred significant debate in Washington about national security concerns and trade policies with China, the Times said. Still, it is possible that CNOOC could return to the negotiating table with a higher bid.

For the past month, Chevron and CNOOC have been locked in a battle of nerves over who will end up controlling Unocal, a mid-sized independent oil company based in El Segundo, Calif. Both bidders are racing against an Aug. 10 deadline, when the shareholders of Unocal will get the opportunity to approve or reject the offer.

The battle has turned into a source of tension between the United States and China, with some American lawmakers saying they would seek to pass legislation blocking the Chinese takeover.

The Times reports that last Thursday, Unocal's board, which met at the company's headquarters, instructed its management to keep negotiating with CNOOC, which had put $18.5 billion on the table in cash. While still endorsing Chevron's cash-and-stock proposal, the board of Unocal decided then that it would consider an offer from CNOOC if several conditions were met. They include financial guarantees if CNOOC walked away from a deal or if the offer was blocked.

Chevron is betting that the opposition to a takeover by a Chinese company will scare Unocal's board away from the Chinese offer, while CNOOC is convinced that, ultimately, Unocal will consider the financial benefits of its bid.

A BBC News report quoted Chevron CEO David O'Reilly as saying that the new offer was "driven by competitive circumstances, but even at this higher price it remains a compelling transaction."

Any purchase by CNOOC would have to be examined by the Bush administration and there are concerns that the process could take months rather than weeks.

CNOOC has made repeated efforts to reassure politicians that its takeover would not jeopardize jobs or prove to be a security risk, and has given assurances that it would sell some assets and leave others in U.S. hands.

"We think that our full-cash offer is still superior even after Chevron raised its bid," a CNOOC spokesman said.

At the heart of the battle lie Unocal's 1.7 billion barrels of proven oil and gas reserves: According to the Times, both companies see Unocal as an opportunity to raise their reserves and increase production at a time when access to oil and gas fields is getting increasingly difficult.
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