July 13, 2005
Cnooc & Unocal: Follow the Stock Price
Posted by Gordon Smith


What does this graph of Unocal's stock price tell you? This graph is a history of Unocal's recent adventures.

Unocal had been the subject of takeover rumors early in the year, and that explains the increasing stock prices in February and early March. On April 4, Chevron agreed to buy Unocal in a cash and stock deal valued at $60.64 per share. Although many Wall Street analysts said that Chevron was overpaying, Unocal had been trading at almost $65 per share (oops!) and promptly decreased in value to less than $60 per share.

In May, Unocal's stock price dropped to around $55, until the last week, when it starts to climb. Why did it drop so far? After the Chevron deal was announced, Chevron's stock price began declining, and there was skepticism about its ability or willingness to complete the deal.

What happened in the last week of May? Rumors of Cnooc's interest started circulating in early May, but they become serious by month's end. Of course, everyone expected Cnooc to outbid Chevron, but many people were predicting a price as high as $70 per share. Unocal's stock price rose to $65 per share, and Cnooc's bid is valued at $67 per share.

Some people have speculated that Chevron will counter with a higher bid. Others are wondering whether Congress will intervene. Unocal's board of directors is scheduled to meet today to vote on Cnooc's proposal, even as rumors circulate that Cnooc's board of directors has authorized a unilateral increase in the bid price. (This rumor was undoubtedly the source of a slight increase in Unocal's share price yesterday.) In the meantime, August 10 creeps ever closer. That's the day when Unocal shareholders are scheduled to vote on the Chevron deal.

It looks to me like the market is approaching this deal with caution. The market isn't betting on a bidding war between Chevron and Cnooc. On the other hand, it is not wagering that Cnooc will go (or be chased) away. One more data point: Cnooc's shares declined by 2% yesterday, a development that was attributed to "profit takers."

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