CNOOC has withdrawn its offer for Unocal Corp., citing politics as the reason for ending a bidding contest between itself and Chevron Corp. Unocal shareholders are to vote on Chevron’s offer Aug. 10.
The Chinese state oil company’s offer prompted opposition from some members of Congress. An amendment to the energy bill passed at the end of July extended the review period by the Committee on Foreign Investments in the US (CFIUS).
Chevron recently raised its offer about 5% to $17 billion, excluding the assumption of Unocal debt. Chevron’s higher offer was still lower than CNOOC’s $67/share offer, or $18.5 billion total, for Unocal (OGJ, June 27, 2005, p. 25).
Chevron agreed to pay $63.01/share Unocal, up from its original $60/share offer in a complicated deal that is 40% cash and 60% Chevron stock (OGJ, July 25, 2005, page. 30).
On Aug. 2, CNOOC called “unprecedented political opposition” its primary reason for withdrawing its offer and argued that its bid was based purely on commercial grounds. CNOOC also noted that it had initiated a voluntary filing with CFIUS and was committed to taking actions regarding Unocal’s US assets to satisfy CFIUS concerns.
CNOOC
“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,” CNOOC said. “This political environment has made it very difficult for us to accurately assess our chance of success.... Accordingly, we are reluctantly abandoning our higher offer to the clear disadvantage of Unocal shareholders and employees.”
US Securities and Exchange Commission documents show that CNOOC considered increasing its offer to $69/share for Unocal on July 16. But in return for the higher offer, CNOOC wanted Unocal to lobby on its behalf before Congress.
CNOOC also wanted to abandon a $500 million Chevron-Unocal break-up fee that CNOOC previously agreed to pay.
Unocal declined both of those requests, citing agreements that Unocal already had with Chevron, SEC documents said.
Reaction
Amy Jaffe, energy fellow at Rice University’s Baker Institute for Public Policy, said CNOOC was “very unlikely” to successfully acquire Unocal even though CNOOC is a professional oil company that works well with Western partners.
“I think it would have been very uphill for them in the political setting, and they also had this problem that they came in late with their bidding,” Jaffe said. “The bid was perceived as government-subsidized. CNOOC was pressing it as a commercial bid, and that probably was their intention.”
CNOOC can find other acquisition assets, but the question remains whether the company might make offers for any companies having US assets after the Unocal experience, Jaffe said
Unocal’s Asian portfolio was especially attractive for CNOOC. “There isn’t an independent that has a better Asian position than Unocal with the least amount of US assets attached to it,” Jaffe said.
Unocal shareholders know that the Chevron offer poses no regulatory problems, but they do not have that certainty with the CNOOC offer, Jaffe said. She questioned whether Unocal shareholders would have wanted to take the risk of accepting the CNOOC offer when there was no certainty that it would be approved by US regulators.
Another factor is that Chinese companies are not accustomed to review by US regulators.
“There was going to be a major evaluation of the CNOOC bid and its practices,” Jaffe said, questioning whether CNOOC was willing to have all its activities and strategies publicly examined by US regulators.
“I’m not saying that they had anything to hide, but you have to have a really serious interest,” Jaffe said. “There is a high level of transparency for publicly traded Western companies. The Chinese oil industry has yet to undergo that kind of scrutiny.” ✦
