August 2, 2005
Backlash ends CNOOC’s Unocal bid
By Deepa Babington and Charlie Zhu
NEW YORK/SINGAPORE (Reuters) - China's CNOOC Ltd.
on Tuesday abandoned a bold $18.5 billion offer to acquire
opposition, clearing the way for the U.S. oil producer to
conclude a deal with larger U.S. rival Chevron Corp.
for Sino-American trade relations and the global scramble to
secure energy supplies, spawning Congressional hearings and
drawing vehement indignation from U.S. lawmakers.
Financially, CNOOC's cash offer in late June easily topped
Chevron's sweetened $17.4 billion bid for Unocal, whose shares
on Tuesday began trading roughly in line with the Chevron bid.
But that was overshadowed by fierce backlash in Washington
over a Beijing government-controlled company attempting to buy
American oil assets as crude prices raced to record highs.
"The political reaction has scared off the board of Unocal,
the shareholders and CNOOC itself," said Edmund Harriss, fund
manager at Guinness Atkinson, which holds CNOOC shares. "I
don't think anybody really anticipated quite what a maelstrom
they were entering into."
CNOOC said in a statement it was reluctantly withdrawing
its offer after considering increasing it, and would have done
so were it not for the political environment in the United
"This political environment has made it very difficult for
us to accurately assess our chance of success, creating a level
of uncertainty that presents an unacceptable risk to our
ability to secure this transaction," the company said.
It called the political response to its offer "regrettable
Some members of the U.S. Congress sought to block a CNOOC
deal almost from the start. Some said allowing Unocal to pass
into Chinese hands would boost Beijing's leverage over Central
and East Asia, while others complained that China was
subsidizing the bid with interest-free and low-interest loans.
Last week a congressional conference committee added a
provision to a broad energy bill that would have delayed the
necessary government review of CNOOC's offer by months.
"No surprise -- it looks like Chevron has pulled off a
pretty good political campaign and got a lot of support," said
Jason Putman, an analyst at Victory Capital Management in
Cleveland, Ohio, which owns Unocal shares.
Responding to the CNOOC withdrawal, Democrat Senator
Charles Schumer said in a statement there was nothing wrong
with CNOOC taking over Unocal. But, he said, the same thing
would not happen in China. "For instance China likely wouldn't
allow an American company to buy a similarly situated Chinese
company. If China were open to American companies buying
Chinese companies, I think CNOOC would have had a much easier
time of it."
Unocal made it clear in public filings that it had been
willing to accept the Chinese bid under certain conditions,
including a higher offer.
CNOOC Chairman Fu Chengyu, the driving force behind the
bid, in the end listened to his political advisers, who had
warned of the high political hurdles the transaction faced.
CNOOC shares, which had struggled under fears of a bidding
war and the assumption of excessive debt, rose to a record high
in Hong Kong trading on Tuesday before the company withdrew its
bid, gaining 2.8 percent to HK$5.50.
"This is good for CNOOC. It clears away the uncertainty
risks," said John Koh, fund manager at Daiwa Asset Management,
which holds CNOOC shares.
Unocal shares were down 5 cents at $64.32, while Chevron
shares rose 1.73 percent to $59.44 a share on Tuesday on the
New York Stock Exchange.
Unocal shareholders are due to vote on the Chevron offer on
Aug. 10. If they approve it, the deal could close that day.
Unocal had no direct comment on CNOOC's withdrawal except
to say that it continues to believe a combination with Chevron
provides the best value for shareholders.
Chevron did not address the CNOOC move either, saying only
that it looked forward to completing the deal on Aug. 10.
(Additional reporting by Wendy Lim in Hong Kong and Mark
McSherry in New York)