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CNOOC still have space to sweeten offer for Unocal

    BEIJING, Aug. 3 (Xinhuanet) -- China National Offshore Oil CompanyLtd. (CNOOC) has the space to sweeten its acquisition offer for US oil company Unocal, but decided not to take any more political risks, a company insider said here on Wednesday.

    "The company has given active consideration to that (to sweeten the offer)," the insider told Xinhua under condition of anonymity. "However, the unprecedented political opposition triggered by CNOOC's bid offer in the U.S. had brought so much uncertainty to the risks of the transaction and the chances of success."

    "CNOOC could not endanger the money of its shareholders to makesuch a deal haunted by political factors," he said.

    CNOOC announced on Tuesday night it had withdrawn its acquisition offer for Unocal, putting an end to a 40-day merger bid, just eight days ahead of a final decision to be reached by Unocal's shareholders.

    The announcement cleared the way for Chevron Corp., the major rival of CNOOC in the bid and the second-largest US oil company, to complete its acquisition of Unocal, although its offer was some 700 million US dollars less than CNOOC's.

    CNOOC, a subsidiary company of the state-owned China National Offshore Oil Corporation, announced on June 23 an all-cash bid for Unocal Oil Company at 67 US dollars per share, totaling 18.5 billion US dollars. It was the highest-ever acquisition bid made overseas by a Chinese company.

    The bid, however, met unexpected political opposition from the US political circles, where certain people viewed the proposed merger as a threat to American security.

    "CNOOC did have certain expectation on possible opposition in the U.S. when making the bid. Nevertheless, the political storm triggered by the deal has surpassed our expectation, as the American Congress went as far as passing a law to block the deal," said the CNOOC insider.

    Last week a congressional conference committee added a provision to a broad energy bill that would have delayed the necessary government review of CNOOC's offer by over 140 days.

    In contrast to the adverse situation CNOOC had been forced into, Chevron passed nearly all review proceedings of the government and won support from the board of Unocal in late July. If it gets support from a special meeting of Unocal's shareholders scheduled for Aug. 10, Chevron will soon complete its acquisition move.

    "It's the proper time for CNOOC to quit the bid though it might be a reluctant choice," said Xing Houyuan, a senior researcher with the Chinese Academy of Trade and Economic Cooperation under the Ministry of Commerce.

    "To further sweeten its bid, CNOOC may finally win the deal. But it would be made at too much economic cost and under various unfair terms," she said.

    "CNOOC's decision to withdraw the bid after fully evaluating the commercial risks adds proof that the bid was purely commercial," said Zhang Wenkui, deputy director of the Enterprises Economy Research Institute of the Development Research Center of the State Council, China's cabinet.

    According to Zhang, even if it can win the deal, CNOOC may haveto face much uncertainty and risk in the future from adverse public opinion as well as continued opposition from politicians inthe United States.

    On Wednesday morning, CNOOC saw its shares on the Hong Kong stock market surge as much as 5.5 percent to a record high of 5.80 HK dollars. Its shares closed nearly 6 percent higher on the New York Stock Exchange on Tuesday.

    China is seeing more and more domestic enterprises go out for overseas acquisitions in recent years.

    Zhang said CNOOC's bidding move for Unocal could provide valuable experience for other Chinese enterprises which also have an overseas acquisition plan.

    A more prudent attitude should be adopted by the Chinese enterprises when making bids for overseas energy enterprises, said Zhang.

    In seeking international energy cooperation, China should use more market measures such as trade and futures. Acquisition of overseas enterprises is not the only or the best way, he said.

    According to analysts here, CNOOC had suffered losses from its investment in the preparation phase and will suffer the possible losses of profit sharing as a result of disclosing its development strategy in the bid move.

    However, the CNOOC insider said the company's withdrawal from the Unocal bid would not have much effect on its future development strategy.
 

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