The Acquisition of Unocal Corporation

Published 01 May 2006
Reference 5368
Region Global
Summary

By the summer of 2005, the US and China were crossing swords on a plethora of issues including intellectual property rights, yuan valuation, underwear imports, and nuclear concerns. The friction stemmed from China's rapid rise as a political, military and economic power as well as from US domestic concerns over loss of jobs and the nuclear threats posed by North Korea and Iran. These issues, which had been simmering for quite some time, reached boiling point when Chinese government-owned CNOOC announced its unsolicited bid for Unocal Corporation, a California-based US oil and gas company.

Teaching objectives

To discuss (1) equal price versus equal value (2) fiduciary responsibility of board members to maximize shareholder value (3) stock versus cash deals (4) free trade versus fair trade. A key issue raised in this case is the time value of money. What would be the appropriate discount rate for delays in closing the deal? What would be the various percentages to assume for the likelihood of consummation of the deal? The case can be used for business students (undergraduate and graduate) as well as non-degree participants such as business executives attending courses, workshops or seminars.

Keywords
  • RD0506
  • AR2006
  • AR0506