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Chinese Abandon Unocal Oil Bid Amid Intense Opposition in US All- American Chevron Deal Puts Paid to CNOOC Offer

Posted on: Wednesday, 3 August 2005, 06:00 CDT

CHINA's state-controlled CNOOC yesterday abandoned its audacious dollars-18.5bn (pounds-10.5bn) offer to acquire Unocal, the California-based oil and gas producer, in the face of intense political opposition. Its withdrawal clears the way for Unocal to reach a deal with major US oil group Chevron.

The takeover battle has highlighted US apprehension about the economic rise of the world's most populous country, which is one of the few communist-led states still in existence.

CNOOC's decision to abandon the deal after persistent American opposition also raises concern over whether the United States is willing to allow a Chinese company to take a major stake in its petroleum industry.

"This is certainly going to make Chinese companies take a longer look before they make the investment of time and money in trying to make a bid like this in the US, " said Andy Rothman, a strategist with the brokerage CLSA.

"I don't think that's a positive thing for the US economy, given that there's no national security issue here."

Other analysts said CNOOC's defeat in the battle for Unocal is likely to deepen investor concerns about Chinese companies' ability to deliver on their stated desire to buy abroad.

During the past few months, Minmetals, a Chinese stateowned group, failed in a dollars-5bn bid for the Canadian resources group Noranda, while Haier, a white-goods manufacturer, was outbid in the race for Maytag, the US maker of Hoover vacuum cleaners.

Similarly, Chinese telecommunications companies lost out in auctions for assets around Asia, leaving Lenovo's dollars-1.75bn purchase of IBM's personal computer business last December and the takeover of the MG Rover car group by Nanjing Automotive as the few notable success stories.

Wall Street oil industry analysts said Chevron, the secondlargest American oil company, will be able to complete its acquisition of Unocal next week, even though its cashand-stock offer is currently worth nearly dollars-1bn less.

They said Chevron had several factors working in its favour - regulatory clearance, the support of Unocal's board, and the backing of US politicians, who questioned whether economic and national security interests would be threatened if a company backed by China's communist government were to buy a major US oil company.

CNOOC - China National Offshore Oil Corporation - made its all- cash bid on June 22, topping the early-April cash-and-stock offer from Chevron, but it faced an uphill road in the US from the start.

CNOOC chairman Fu Chengyu, the driving force behind the bid, in the end accepted the advice of his political counsellors, who had warned of the high political hurdles the transaction faced.

"CNOOC has given active consideration to further improving the terms of its offer, and would have done so but for the political environment in the US, " the company said from its base in Hong Kong. It called the political response to its offer "regrettable and unjustified."

Some members of the US Congress sought to block the deal almost from the start. 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.

These legislative hurdles would have prevented Unocal from being sold for at least another six to nine months, with no guarantee that the deal would ever be completed.

Chevron spokesman Don Campbell declined to comment on CNOOC's remarks, saying the company is focused on assuring a smooth transition after its Unocal acquisition is complete.

The tie-up is expected to be completed on August 10 when Unocal shareholders are scheduled to formally vote on the offer. CNOOC's withdrawal from the bidding is expected to turn the vote into a mere formality.

Source: Herald, The; Glasgow (UK)

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