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The board of Unocal was meeting for the second time in four days on Sunday night to consider the competing offers from CNOOC of China and Chevron of the US.

One person close to the situation said there was a “distinct possibility” Unocal would take a formal position on CNOOC’s $18.5bn offer.

But others cautioned that Unocal might continue to remain silent - as it did after a previous meeting last Thursday. So far, Unocal, which is based in El Segundo, California, is continuing to support Chevron’s $16.6bn proposal.

Over the weekend, there was a fresh round of manoeuvring, with Unocal hoping to extract the best possible offers from both suitors. But so far, CNOOC and Chevron have resisted pressure to raise their bids. CNOOC is offering $67 per share in cash, and has been authorized by its board to raise up to $69 per share in cash if necessary. Chevron is offering about $61 per share in cash and stock.

Unocal directors will be weighing the lower price of Chevron’s offer against the risk that CNOOC’s bid might be blocked by the US government because of national security or other reasons.

On August 10, Unocal shareholders are expected to vote on Chevron’s proposal. That date is seen by many observers as the deadline for the takeover battle to play itself out.

The prospect of a takeover battle unsettled investors in CNOOC on Friday. The company’s shares closed down more than 4 per cent, in spite of a 12.75 point rise in the benchmark Hang Seng index.

A possible rise in CNOOC’s offer to $69 per share the price up to which CNOOC’s board has authorised management to proceed could also damage the company’s credit rating, according to credit rating agencies. The higher offer would be funded through debt.

“Their credit risk will still be low but not the lowest one, so I think they probably cannot maintain their AAA domestic currency rating,” said Ivan Chung, managing director of Xinhua Far East China Ratings.

He added that CNOOC’s international credit rating, which is currently the same as China’s, could fall below the sovereign ceiling, increasing the cost of repaying its debt.

Copyright The Financial Times Limited 2017. All rights reserved.
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