Chinese oil company CNOOC is planning a bid of about US$13 billion for Unocal Corp. (NYSE: UCL), according to Financial Times. Frederick P. Leuffer, an analyst at Bear, Stearns & Co. Inc., says he believes Unocal would not resist a fair offer, as management seems determined to maximize shareholder value. "If there were a bid by CNOOC for Unocal, we would anticipate that other companies, such as ConocoPhillips, Royal Dutch/Shell, ChevronTexaco and possibly Total, might be interested in bidding as well." John P. Herrlin, an analyst at Merrill Lynch, says, "If the Unocal transaction was true, there would likely be issues of a U.S. company being sold to a Chinese one in which there is governmental ownership." His current opinion of Unocal shares is neutral. "The company has been perennially discussed as a takeover candidate by the Street. Our perspective on a Unocal merger was that any purchaser would have to be comfortable with U.S. or North American assets which had production-growth issues, new international projects with longer-term lead times with good potential, but capital commitments, and U.S. environmental liabilities from its days as an old integrated that have a 'long tail.'" Herrlin adds that Unocal management has worked hard to clean up such fiscal liabilities and stabilize domestic operations, but in 2004 the company had problems internationally at West Seno in Indonesia. "At the end of 2003, Unocal had about $250 million of estimated environmental costs. We estimate UCL would be worth $27.10 per share, and if one opted for a pretax reserves value, it would be $43.36. We don't and won't speculate, and did speak with the company, which would not address this issue, as one would expect." Leuffer's appraised value estimate for Unocal, which he rates Outperform, is $47.45 per share, based on $25 oil. In light of current commodity prices, he says a more likely sale price would be in excess of $50 per share. "Regardless of whether a deal is in the offing, we believe Unocal has one of the most exciting production profiles in the industry and the stock is attractively valued relative to its peers." -Bertie Taylor

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