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China's ambitious stance underpins Unocal offer

BEIJING - If state-owned CNOOC Ltd.'s unsolicited bid for U.S. oil company Unocal Corp. is completed, it would be the biggest in a multibillion-dollar wave of foreign acquisitions by Chinese companies trying to secure a place as global competitors.

It comes amid a flurry of foreign oil and gas deals by China as its government, facing stagnant production at home, tries to secure energy abroad for its booming economy, the world's third-biggest oil importer behind Japan and the United States.

The $18.5-billion offer by China's third-largest oil producer, the communist nation's most ambitious attempt to acquire a Western corporation, sets the stage for a possible takeover battle with Chevron Corp., reflecting China's new willingness to adopt Wall Street's more aggressive tactics. Chevron had offered to buy Unocal for $16.6-billion, a proposal that Unocal's board had accepted. Until recently, hostile takeovers by Chinese companies abroad were almost unheard of.

Unocal, the ninth-biggest U.S. oil company, said it would evaluate the CNOOC offer, but its board's recommendation to shareholders to accept the Chevron offer remained.

Chevron remained confident that its bid would prevail. Vice chairman Peter Robertson told CNBC television the Chevron bid is "very competitive" and he believes Unocal shareholders will approve the Chevron offer soon.

"We think it is the best-value proposition on the table. We think we're going to prevail at the level we're at," Robertson said.

Chevron, based in San Ramon, Calif., offered in April to acquire Unocal in a deal that would give Unocal shareholders a choice of $65 per share in cash, Chevron stock or a mix of stock and cash.

A deal with CNOOC, if it were to go forward, would almost certainly meet obstacles in Washington. Even before CNOOC made its offer, two members of Congress appealed to President Bush last week to review it for possible security threats. They warned of China's "pursuit of world energy resources."

Robertson told CNBC that a Chevron deal would put more oil and gas into the commercial market. "Americans are worried about the supply of oil and gas. There is an issue here of who can put more oil and gas into the market on a commercial basis. I think if the Chinese government buys this asset, you can be sure that much of these materials will go to China," Robertson said.

CNOOC chairman and CEO Fu Chengyu insisted Thursday that national security wasn't an issue, calling it a friendly bid and saying it would be superior for Unocal shareholders.

"This transaction is purely a commercial transaction," he said. "We are confident that the U.S. government will support this project."

The federal panel that considers security risks of foreign firms buying or investing in U.S. companies in March cleared Chinese computer maker Lenovo's $1.75-billion purchase of IBM's personal computer division, which created the world's third-largest PC maker.

The panel meets in secret and includes representatives from the departments of Treasury, Defense, Justice, Commerce, State and Homeland Security. The committee makes recommendations to the president, who can block sales for national security reasons.

Former President George Bush is the only president to block such a deal, stopping the sale of a Seattle aircraft parts manufacturer to China in February 1990.

Elsewhere, China has forged oil and gas deals in countries ranging from Sudan to Kazakhstan to Venezuela. Beijing is competing with Tokyo for access to Russian oil from a planned Siberian pipeline.

China used to meet its own needs from domestic oil fields but became a net importer in the 1990s and now is one of the world's biggest consumers, with the United States and Japan.

The bid for Unocal is "a case of the Chinese trying to secure supply for their own purposes," said Daniel Hynes of ANZ Bank in Melbourne, Australia. "With their oil needs growing exponentially, securing this asset would put them in very good stead for the future."

CNOOC's offer is the biggest Chinese attempt at an unsolicited takeover of an American company - but not the first.

Appliance maker Haier Group and two U.S. private equity firms offered $1.28-billion for Maytag after the American company agreed to be bought by a U.S. firm. Maytag says it is considering the Haier consortium's offer.

CNOOC said its deal with Unocal would more than double its production and increase reserves by nearly 80 percent. The company estimated that 85 percent of the combined reserves of both companies are in Asia and the Caspian Sea region.

Yang Hua, CNOOC's chief financial officer, said his company is "prepared to closely cooperate . . . to get U.S. approval for this deal." The company plans to retain "substantially all employees, including those in the U.S," noting that Chevron plans layoffs, he said.

[Last modified June 24, 2005, 00:46:17]