Two sides of the CNOOC-Unocal story. Will it be one of the ultimate hypocrisy? Or, is it being played up so those batting eyes will mostly be 'round' ones!
Chinese Bidder for Unocal Faces Obstacles
Friday June 24, 2:40 am ET
By Gary Gentile, AP Business Writer
Chinese Bidder for Unocal Faces Steep Regulatory Obstacles, Political Foes
LOS ANGELES (AP) -- Whether the purchase of Unocal Corp. by the Chinese would pose a risk to U.S. security is just one of many hurdles the proposed $18.5 billion offer by China's state-owned CNOOC Ltd. must overcome.
A letter to Treasury Secretary John Snow was circulating in Congress on Thursday calling on the Bush administration to investigate the national security implications of the proposed deal. It was signed by Reps. William J. Jefferson, D-La.; Al Green, D-Texas; Bobby Jindal, R-La.; and Kevin Brady, R-Texas.
Snow, who chairs a federal panel that considers security risks of foreign firms buying or investing in U.S. companies, told a Senate Finance Committee hearing on China's currency system that he expects both parties to voluntarily submit to a review.
"It's not a business transaction at all," C. Richard D'Amato, chairman of the U.S.-China Economic and Security Review Commission, a congressional advisory panel, said Thursday. "This is not a free market deal. This is the Chinese government acquiring energy resources."
Fu Chengyu, chairman and CEO of CNOOC, which is 70 percent owned by the Chinese government, dismissed such fears Thursday, calling it a "purely commercial transaction" that would benefit Unocal shareholders. He voiced confidence that the U.S. government would support the deal if the companies strike a deal.
That process was given a green light by rival Chevron Corp., which already has a deal in place to buy El Segundo, Calif.-based Unocal for nearly $16.6 billion in cash and stock. Chevron granted Unocal a waiver on Thursday, allowing the negotiations with CNOOC to proceed.
Many oil industry experts agreed that security fears were unwarranted and even warned that such responses could make it harder for U.S. oil giants to gain the international access they need to grow.
"This is not a company building military aircraft or missile technology. This is energy, at the end of the day," said Lawrence Goldstein, president of the nonprofit Petroleum Industry Research Foundation in New York.
The offer also sets up a possible take-over battle with Chevron, which said it will not sweeten its offer -- at least for now.
"We're satisfied with the bid we have on the table," Peter Robertson, Chevron vice chairman, said in an interview on CNBC. "We think it's still the best opportunity for the shareholders."
In a statement Friday, Fu welcomed the start of talks with Unocal and said his company was "prepared to start immediately."
"As we indicated upon announcing our bid, we believe this offer brings superior value to Unocal shareholders," he said.
CNOOC's move is the biggest attempt yet in a string of acquisition bids by Chinese companies for American firms.
Appliance maker Haier Group and two U.S. private equity firms offered $1.28 billion for Maytag Corp. after the American company agreed to be bought by another U.S. consortium. Maytag says it is considering the Haier offer.
Chinese computer maker Lenovo's $1.75 billion purchase of IBM's personal computer division was cleared by a U.S. federal panel in March.
Robertson told CNBC that a Chevron deal would supply commercial markets with more oil and gas.
"Americans are worried about the supply of oil and gas. There is an issue here of who can put more oil and gas into the market on a commercial basis. I think if the Chinese government buys this asset, you can be sure that much of these materials will go to China," Robertson said.
But industry analysts say the deal poses no genuine supply threat to the U.S. market, which imports about 12 million barrels of oil per day, because Unocal's resource base in the United States is relatively small. It is Unocal's Asian assets that CNOOC is really interested in, they said.
CNOOC said the acquisition would more than double its production and estimated that 85 percent of the combined reserves of both companies are located in Asia and the Caspian Sea region.
Moreover, a deal between CNOOC and Unocal could benefit American companies, consumers and workers in the long run, analysts said.
Oil analyst Fadel Gheit at Oppenheimer & Co. in New York said it would be the "pinnacle of hypocrisy" for the United States to put roadblocks in CNOOC's way, considering that President Bush and others in his administration have repeatedly scolded Russia for not opening its doors enough to U.S. oil companies.
"American companies must expand globally, but if we cut off people from coming into our country other countries will just block our companies from doing the same," Gheit said.
Chevron, based in San Ramon, Calif., might raise its offer slightly, but is not likely to engage in a bidding war with the Chinese, said Gene Gillespie, an oil analyst with investment firm Howard Weil Inc.
"I think Chevron is more financially disciplined than that," Gillespie said.
Chevron is not under a lot of pressure to do anything in the short term, Gillespie said, because of the high degree of uncertainty over whether the CNOOC bid would be approved.
AP Business Writer Brad Foss in Washington contributed to this report.
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