Citing ‘Political Environment,’ Cnooc Backs Off Its Bid To Acquire Unocal

Cnooc abandoned its $18.5 billion bid for Unocal, the largest overseas acquisition attempted by a Chinese company, because of opposition from American lawmakers.The decision clears the way for Chevron to buy the oil and gas producer.Efforts in Congress to delay or block any Chinese takeover were “regrettable and unjustified,” Cnooc said in a statement.Cnooc, which is 71% owned by its state-controlled parent, decided against making a higher offer because of the “political environment,” according to the statement.“It’s hard to imagine they did not anticipate the vehemence of the opposition in Congress,” a fund manager at William Blair & Company in Chicago, David Merjan, said. “I am surprised they caved so easily to political pressure after months of preparing the bid.” William Blair was the largest nongovernment holder of Cnooc shares until selling the stake earlier this year.The Cnooc chairman, Fu Chengyu, sought Unocal to help satisfy surging energy needs in China, the fastest-growing major economy in the world. American politicians, citing record oil prices and the failure of global supply to keep pace with demand, said the bid for El Segundo, Calif.-based Unocal was a grab for resources by the Chinese government and a threat to national security.“What this fight was all about were larger concerns about Chinese economic and military growth,” the director of natural resource studies at the Cato Institute in Washington, Jerry Taylor, said. The Cnooc bid “touched on a lot of raw nerves,” he said.The roadblocks thrown up by Congress made Cnooc’s offer less attractive. Unocal’s board approved a sweetened bid from Chevron, the second biggest American oil company, on July 19. Unocal said the higher price from Cnooc didn’t offset the risk that the bid would be delayed or blocked.Chevron said its plan was superior because all necessary American approvals are in hand. The deal will close immediately should shareholders approve it in a vote set for August 10, according to Chevron.Unocal shares rose 16 cents to $64.53 yesterday in New York Stock Exchange composite trading. Chevron shares rose $1.13, or 1.9%, to $59.56, so the value of the company’s cash and stock offer is now just 12 cents below Unocal’s share price.Unocal would have doubled Cnooc’s oil and gas output and raised its reserves 79%. Chinese oil demand more than doubled in the past 10 years as the economy surged, making the nation the world’s second-largest oil user after America. The government would like to shift more of energy use to natural gas from coal and oil.American lawmakers, including Rep. Richard Pombo, a Republican from the California district that includes San Ramon, where Chevron is located, backed a measure that would have delayed any Chinese acquisition of an American oil company by at least 120 days. The measure was added to President Bush’s energy bill, which Congress approved last week.“It is the outcome that I had hoped for,” Mr. Pombo said in an interview. “If we hadn’t put the amendment in the energy bill, they might have succeeded.”Mr. Pombo said the government should proceed with a study of China’s energy policy, as called for in the energy bill, and develop domestic supplies more aggressively. He favors opening the Arctic National Wildlife Refuge in Alaska to oil drilling.“This is a wake-up call for us,” Mr. Pombo said. “The more domestic resources that we develop, the less competition there’s going to be on the international market.”Mr. Taylor of the Cato Institute, who testified before Congress last month, took the opposite view. “Unocal is a minor actor in world oil markets,” Mr. Taylor said. “The acquisition was relatively unimportant economically.” The political opposition cheated Unocal shareholders out of a higher price and failed to address any real national security or economic concerns, Mr. Taylor said.The Bush administration has avoided the complaints about the Cnooc bid aired by members of Congress. Treasury Secretary Snow declined yesterday to make any specific comment on the company’s decision to drop its pursuit of Unocal. “But let me say, America remains open for business,” Mr. Snow told reporters in Rio de Janeiro. “We have a deep commitment to open markets, to encouraging investment, welcoming investment.”

Citing ‘Political Environment,’ Cnooc Backs Off Its Bid To Acquire Unocal

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