By the time it was resolved yesterday, the battle to buy Unocal had become more than a takeover tussle pitting Chevron, the second-largest...
SAN FRANCISCO — By the time it was resolved yesterday, the battle to buy Unocal had become more than a takeover tussle pitting Chevron, the second-largest U.S. oil company, against CNOOC, China’s third-largest oil concern.
The showdown also underscored the stewing tensions between the United States and China, a pair of international powers whose fortunes are becoming increasingly intertwined despite their vast cultural, economic and governmental differences.
Chevron finally prevailed with a big helping hand from U.S. lawmakers, whose apprehensions about a U.S. oil company falling into the hands of a company controlled by China’s Communist government prompted CNOOC to withdraw its all-cash bid of $18.4 billion.
But it could turn into a Pyrrhic victory for Chevron — and perhaps the United States — if China decides to use its increasing financial clout to retaliate for the political bashing of CNOOC.
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“China is probably already thinking, ‘We don’t know how and we don’t know when, but we will get [Chevron] for this,’ ” said Oppenheimer analyst Fadel Gheit. “This will go down in the history books in China.”
Chevron had several factors working in its favor: regulatory clearance, the support of Unocal’s board and the political uproar over CNOOC’s bid.
CNOOC raised hackles in Congress because the company is 70 percent owned by China’s government. That connection caused worry that a CNOOC takeover would threaten the United States’ economic and national-security interests.
Several lawmakers also criticized the government-backed financing that would help cover CNOOC’s bid.
In a strongly worded statement, Hong Kong-based CNOOC said it might have raised its bid even higher, if not for the politics.
“The unprecedented political opposition … was regrettable and unjustified,” CNOOC said. “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.”
“It’s hard to imagine they did not anticipate the vehemence of the opposition in Congress,” said David Merjan, fund manager at William Blair in Chicago, the largest nongovernment holder of CNOOC shares until selling the stake earlier this year. “I am surprised they caved so easily to political pressure after months of preparing the bid.”
CNOOC’s retreat comes a day after major investment-advisory firm Institutional Shareholder Services recommended Unocal investors accept Chevron’s bid instead of getting entangled in the political turmoil facing CNOOC’s higher offer.
Chevron spokesman Don Campbell declined to comment.
Unocal spokesman Barry Lane said the company’s board remains convinced it chose the superior offer.
Gheit doubted a bid from another foreign oil company would have met such stiff opposition.
“If [Netherlands-based] Royal Dutch Shell had come up with an offer $2 per-share higher, then Chevron wouldn’t be getting Unocal,” Gheit said. “Let’s face it: We are treating the Chinese completely different from most other countries.”
University of Maryland business professor Peter Morici believes different standards must be applied to China because the country hasn’t lifted its own restrictions on foreign investments and, until recently, refused to lift currency controls that have enabled it to build a huge stockpile of dollars.
“China is not playing by the same rules as everyone else,” said Morici. “China serves its own interests and no one else’s. They are not into mutual benefits.”
“Good for Chevron”
“This deal is good for Chevron — it’s something they needed to do — but if I were Chevron, I would be calling up China right now, saying, ‘Come, let us reason together,’ ” said William Ferer, director of research for W.H. Reaves, an institutional money manager.
Yesterday’s resolution pleased investors.
Chevron’s shares gained $1.13, or nearly 2 percent, to close at $59.56. CNOOC’s shares rose $4.15, or 6 percent, to $73.49, and Unocal’s shares edged up 16 cents to $64.53.
Although Unocal’s shares have slipped from their recent 52-week high of $66.79, market value has climbed by about $6 billion, or nearly 50 percent, during the past seven months.
Merjan’s comments provided by Bloomberg News.