Unocal Case Analysis: Shareholder Value and Financial Strategies

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Homework Assignment
AI Summary
This document presents an analysis of the Unocal case, examining the implications of a takeover bid and subsequent exchange offers on shareholder value. The assignment addresses two key questions: Firstly, it calculates the value per share a public shareholder would receive by participating in both Pickens' tender offer and Unocal's exchange offer, detailing the residual ownership after both offers close. Secondly, it outlines a strategy to maximize shareholder value, emphasizing the importance of minimizing unnecessary expenses and increasing cash flow through regular expense report reviews and cost-cutting measures. The document further explores the rules governing exchange offers, highlighting similarities to cash tender offers. The analysis includes a breakdown of share ownership and participation in the offers, providing a comprehensive understanding of the financial outcomes for shareholders. The conclusion emphasizes the importance of strategic financial management to enhance company performance and increase shareholder value.
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Running Head: UNOCAL CASE 1
Unocal Case
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UNOCAL CASE 2
Unocal Case
If the agreement went as originally planned, all shareholders would definitely receive
roughly similar deal per share under current stock buyback offer. Unocal offer what is known as
a self-tender for its own stock with a reasonable share price of about $72 (Brain, 2013). The cost
of the proposal culminates in more debts for the company. This would imply that Unocal in
effect exchange about $72 worth of debt securities for a section of the Pickens’s offer. If the
shares are valued at the current market price, the overall value of investments made by Mesa
would culminate to about $1-$2 per share less than the average cost which incorporate financing
and legal expenses. According to the case, the exchange offer appears oversubscribed and it is
important to note that a preliminary count of the submitted shares shows that the proportion
would most likely be 38.4%. This implies that every eligible shareholder would receive about
$72 for every share of debt securities for 38.4% of the total shares submitted for offer inclusion.
After the offer close and the buyout is completed, my residual ownership will be the cash
value of my shares in Unocal. After the takeover, the shares of the shareholders definitely
disappears from their portfolio within a certain period following the official closing date and be
replaced with cash value of the shares defined in the buyout. The deal involves a two-tier front
loaded cash tender of about 64 M shares and an outstanding stock of Unocal valued at a price of
$54 for every share. The back end of the deal implies elimination of publicly held shares through
security exchange worth $54 for every share. In this context, all shareholders would definitely
receive roughly similar deal per share under current stock buyback offer.
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UNOCAL CASE 3
To maximize the value of shares for the company’s shareholders, it is important to use
strategies that minimizes unnecessary expenses and increases cash flow for the company. The
best strategy is to review annual or monthly expense reports with a motive of determining
expenses that can be reduced or completely eliminated without adversely affecting operations of
the company. When the company’s overhead costs goes down, it is likely that more profits will
be produced for every revenue earned thus increasing the value of shares. As to the rules that
govern exchange offers, while there are some differences in using securities versus cash, in most
respects the same rules apply as in the case of a cash tender offer. I should mention that at some
point Unocal followed up with a second $72 exchange offer for only. Therefore, I will focus on
strategies that increases company’s cash flow and significantly eliminate those that reduce the
cash flow of the company.
Exhibit 3 Tender Offers & Share Count
Status Percent Pickens Percent Exchange Percent Breakdown Quo Own Tender
Own Offer Own
Total Unocal Shares Outstanding 174 174 174
Shares in Unocal $72 Exchange Offer 87
Remaining Shares Outstanding 174 174 87
Shares Owned by Pickens 23 13% 23 13% 23 26%
Shares in Pickens $54 Tender Offer 64 37% 64 74%
Remaining Publicly Owned Shares 151 87% 87 50% 0 0%
Total Shares Outstanding 174 100% 174 100% 87 100%
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UNOCAL CASE 4
Reference
Brain, Q. (2013). Unocal Corporation and Mesa Petroleum Co. Business Journal, 12-23.
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