Chinese Drop Bid To Buy U.S. Oil Firm
Wednesday, August 3, 2005
NEW YORK, Aug. 2 -- Chinese oil company Cnooc Ltd. on Tuesday withdrew its $18.5 billion takeover bid for California energy firm Unocal Corp., saying it could not overcome resistance from politicians in Washington who said such a deal could threaten U.S. national security and violate the rules of fair trade.
In dropping its effort, Cnooc, of which the Chinese government owns 70 percent, said the opposition in Washington was "regrettable and unjustified" and that it would have increased its offer had the resistance not been so strong.
Cnooc's decision ended a politically explosive takeover fight but could have larger implications for already tense economic relations between the dominant economy in the West and the rising commercial power in the East.
Experts said Cnooc's withdrawal could lessen Chinese interest in future deals with U.S. companies and stiffen its resistance to other priorities of the Bush administration and Congress, such as allowing further appreciation in the value of the yuan, China's currency. It could also increase China's interest in making energy deals with nations that Washington considers dangerous rogue states, such as Iran and Sudan.
"I think reciprocal reaction will come," said Oded Shenkar, a professor at Ohio State University and an expert on China-U.S. trade relations. "It may be that the next time there is an opportunity for a joint venture in China, you will see U.S. investors shut out and the deal going to the French or to Royal Dutch/Shell instead of Exxon Mobil.
"The reaction may not come tomorrow because the Chinese approach is not to do tit for tat. But it will come, and it could come in the energy sector or it could come in another area."
Others said the impact would be muted because China generally encourages investments by Western companies. "They want that investment. Our companies help them build their industrial, scientific and technological base," said Patrick A. Mulloy, a member of the U.S-China Economic and Security Review Commission, which was established by Congress to study trade relations between the two countries.
Cnooc's decision to abandon the largest attempt by a Chinese company to buy a U.S. firm clears the way for Chevron Corp. to acquire Unocal, which has extensive oil and gas reserves in Asia. Unocal's board has endorsed Chevron's $17 billion cash-and-stock offer and shareholders are to vote on the deal Aug. 10.
Cnooc made its unsolicited bid on June 23, two months after Unocal agreed to be acquired by Chevron. The reaction in Washington was swift.
Members of Congress, many of them heavily lobbied by Chevron, lined up to attack Cnooc's bid. They said that the company benefited from sweetheart financing from the Communist government in Beijing and that the purchase would be a dangerous energy grab by China.
Sources close to Cnooc said company executives expected opposition and a thorough review by the Committee on Foreign Investment in the United States, the multi-agency panel chaired by the Treasury secretary.
But the sources said Cnooc Chairman Fu Chengyu and other executives and directors were shocked by the intensity of the negative reaction from Congress and by signals that the administration did not want to decide whether to accept or reject Cnooc's bid. The president has final authority to accept or reject such deals.