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Chinese oil company offers 18b for unocal { June 22 2005 } Original Source Link: (May no longer be active)
http://www.nytimes.com/2005/06/22/business/worldbusiness/22WIRE-CNOOC.htmlhttp://www.nytimes.com/2005/06/22/business/worldbusiness/22WIRE-CNOOC.html
June 22, 2005
Chinese Oil Company Offers $18.5 Billion for Unocal
By DAVID BARBOZA
and ANDREW ROSS SORKIN
SHANGHAI, Thursday, June 23 - A Chinese state-controlled oil company made a $18.5 billion unsolicited bid for Unocal today, igniting the first-ever takeover battle between corporations in China and the United States.
The bold bid by the China National Offshore Oil Corporation, or CNOOC, may be a watershed in Chinese corporate behavior and demonstrates the increasing influence of Wall Street's bare-knuckled tactics in Asia. The offer also illustrates how crucial oil and gas resources are to China given its huge growth.
CNOOC's bid, which comes two months after Unocal agreed to be sold to the American energy giant Chevron for $16.8 billion, is expected to provoke a fierce debate in Washington about the nation's trade policies with China and the role of the two governments in the growing trend of deal making between companies in both countries.
Earlier this week, a consortium of investors led by the Haier Group, one of China's biggest companies, made a bid to acquire the Maytag Corporation, the American appliance icon, for about $1.3 billion, surpassing an earlier bid made by a group of American investors. Last month, Lenovo, China's largest computer maker competed its $1.75 billion to acquire I.B.M.'s legendary personal computer business, creating the world's third-largest computer maker after Dell Computer and Hewlett-Packard.
Analysts suggest these deals are the latest symbols of China's growing economic clout, and the soaring ambitions of a new breed of corporate giants in this country. China wants to be a player on the world stage, and it is eager to have it own energy resources, its own multinational corporations and its own dazzling corporate icons.
After years of attracting billions of dollars in foreign investment, and turning itself into the world's largest factory floor, China appears to be nurturing the growth of its own corporate giants, trying to create its own beacons of capitalism. And some of China's biggest companies are now on the acquisition hunt, trying to snap up global treasures.
"If there's an asset up for sale anywhere in the world, people are looking to China, particularly if there's a manufacturing element involved," said Colin Banfield, who runs the mergers and acquisitions practice at Credit Suisse First Boston in Asia. "And if these two deals go through this year, no one is going to doubt the credibility of the Chinese corporates when it comes to M.&A."
The deal making and bidding wars are all the more remarkable because they involve Chinese companies taking on American multinationals in a series of deals that are certain to be a boon for western lawyers and investment bankers, many of whom have in recent years been betting hundreds of millions of dollars on China's rise. Indeed, CNOOC is being advised on its bid by an army of bankers from Goldman Sachs, J.P. Morgan Chase and N M Rothschild & Sons of Britain.
CNOOC is interested in Unocal, once known for its 76 brand, less for its exploration and production in North America than its huge reserves in Asia. Twenty-seven percent of Unocal's proved oil reserves and 73 percent of its proved natural gas reserves are located in Asia, according to Merrill Lynch.
CNOOC may face an uphill battle: CNOOC will have to persuade Unocal's shareholders to vote against its deal with Chevron before the company would be allowed accept a deal with CNOOC, which would then have to be put to another shareholder vote.
CNOOC is making an all-cash bid of $67 a share for Unocal, exceeding Chevron's cash and stock bid valued at $62 a share.
Wall Street had been anticipating for several days that CNOOC would make a higher bid. On Wednesday, Unocal's shares closed at $64.86.
Even though CNOOC's offer is worth $1.5 billion more than Chevron's, some shareholders could still decide that the regulatory review process and time required to complete a deal with CNOOC pose too great a risk.
Chevron, which could also raise its bid to head-off CNOOC, is racing to complete its deal with Unocal and put it to a shareholder vote as early as August.
In CNOOC's letter to Unocal outlining its bid, it went to great lengths to say that its bid is friendly, despite it being unsolicited. "This friendly, all-cash proposal is a superior offer for Unocal shareholders," wrote CNOOC's chairman and chief executive, Mr. Fu Chengyu.
Unocal said in a statement that it would evaluate CNOOC's offer, but that its board continued to support its deal with Chevron.
Chevron said in a statement that it stood behind its merger agreement with Unocal, which was approved by the boards of both companies. "The Chevron/Unocal agreement combines compelling value, regulatory certainty and accelerated timing, providing a superior transaction for Unocal stockholders," the company said.
It added, "A transaction with Chevron is highly likely to close, while the CNOOC proposal must undergo an extensive regulatory process in the United States and elsewhere."
CNOCC also tried to assuage concerns of some lawmakers in Washington and pledged to continue Unocal's practice of selling all of the oil and gas produced in the United Sattes back to customers in the United States. And the company said it would retain substantially all of Unocal's employees in the United States.
Already, lawmakers in Washington are questioning whether the Bush administration should intervene to block CNOOC 's bid for Unocal, which was founded in 1890 as the Union Oil Company of California.
Two Republican congressmen from California, Richard Pombo and Duncan Hunter, wrote a letter last week to President Bush urging the transaction be scrutinized because of concerns of national security. Unocal is based in El Segundo, Calif.
In their letter, they wrote: "As the world energy landscape shifts, we believe that it is critical to understand the implications for American interests and most especially, the threat posed by China's governmental pursuit of world energy resources. The United States increasingly need to view meeting its energy requirements within the context of our foreign policy, national security and economic security agenda."
Energy Secretary Sam Bodman said at meeting of the National Petroleum Council on Wednesday that the government's review of the deal would be "truly a complex matter," according to Reuters.
In Beijing, Liu Jianchao, a spokesman for China's Foreign Ministry, told reporters on Tuesday that "this is a corporate issue," according to Bloomberg News. "I can't comment on this individual case, but I can say we encourage the U.S. to allow normal trade relations to take place without political interference."
David Barboza reported from Shanghai for this article, and Andrew Ross Sorkin from New York.
Copyright 2005 The New York Times Compan
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