CNOOC Withdraws $18.5B Bid for Unocal
SAN FRANCISCO (AP) - China's government-controlled CNOOC withdrew its $18.4 billion bid for Unocal on Tuesday, ending a politically charged takeover battle that highlighted the United States' growing apprehension about the economic rise of the world's largest country. CNOOC's retreat clears the way for Chevron to complete its acquisition of Unocal next week, even though its cash-and-stock offer is currently worth nearly $1 billion less. But Chevron had several factors working in its favor - regulatory clearance, the support of Unocal's board and the backing of U.S. lawmakers, who questioned whether economic and national security interests would be threatened if a company backed by China's Communist government were to buy a major U.S. oil company.
Those misgivings virtually ensured CNOOC's bid would have to undergo a rigorous - and possibly tempestuous - review that would have prevented Unocal from being sold for at least another six to nine months, with no guarantee that the deal would ever be completed. In a strongly worded statement, Hong Kong-based CNOOC said it might have raised its bid even higher, if not for the political backlash. Chevron spokesman Don Campbell declined to comment on CNOOC's remarks, saying the company is focused on assuring a smooth transition after its Unocal acquisition is complete. The marriage is expected to be consummated Aug. 10 when Unocal shareholders are scheduled to formally vote on the offer. CNOOC's withdrawal from the bidding is expected to turn the vote into a mere formality.
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Washington Politics Shock Chinese
Forbes
Chengyu Fu, chief executive of the China National Offshore Oil Corp. is shocked-shocked to find there is politics going on in Washington, and that it can derail takeover bids. The oil company, which is 70% owned by the Chinese government, has said it is dropping its $18.5 billion bid for California-based Unocal because of "the political environment in the U.S." Critics of the bid contend the acquisition might imperil U.S. energy security, and a raft of legislation intended to derail it has been batted around both houses of the U.S. Congress.
CNOOC's withdrawal clears the way for Chevron to buy Unocal with a bid it raised last week to $17.4 billion from its original $16.7 billion. Free of a potentially six-to-nine month long and bruising regulatory review, that bid has been backed by the Unocal board ahead of a shareholder vote due Aug. 10. But if to the winners go the spoils, then to the losers come a lot of questions. And China's attempts to expand its global corporate footprint through a series of high-profile, cross-border mergers and acquisitions has seen more losers in recent months than Beijing will have liked.
The big question they raise goes way beyond politics, even though there is no doubt that China is a sensitive nerve among the American public and politicians alike these days.
That question is this: Just how good are Chinese companies at the global M&A game and especially when they run up, as they invariably must, against competing foreign bidders for whom this isn't the first time in the rodeo?
Consider the recent record:
- Last month, Haier Group, China's leading white-goods manufacturer, dropped out of the bidding for Maytag the U.S. appliance maker, in the face of stronger offers from Whirlpool and Ripplewood Holdings, an investor-led group.
- The same month, Beijing-based CITIC Resources dropped a bid for a controlling interest in Thai Petrochemical Industry, the country's largest corporate defaulter.
- In June, a consortium including state-owned China National Petroleum Corp. lost out to Japan's Mitsui in the bidding for the Thai oil and gas assets of Pogo Producing, a U.S. energy firm, that sold for $820 million.
- In March, state-owned China National Metals and Minerals Corp. (China Minmetals) dropped a multibillion-dollar plan to take over leading Canadian copper and zinc miner Noranda, which outmaneuvered it with a proposed shuffling of corporate assets with Falconbridge.
- In January, China's state-owned Sinochem failed in its $669 million bid to buy South Korea's oil refiner Inchon.
- Last year, PetroChina was among losing bidders for a stake in Medco, Indonesia's largest listed oil and gas producer.
On the success side, there is computer maker Lenovo's $1.75 billion purchase of IBM's personal computer business last December and Nanjing Automobile's successful, if much smaller, bid last month for the rump of bankrupt U.K. carmaker MG Rover Group.
What were the key differences between success and failure?
Most of the losses came in knock-down takeover battles that attracted bigger and more experienced foreign rivals to make counterbids. Chevron, for example, is not just the world's second-largest oil company after Exxon Mobil, it is also about 20 times larger than CNOOC, which is only the third-largest oil company in China.
While Nanjing Automobile did beat out a rival, that was Shanghai Automotive Industries Corp. The biggest successful deal, Lenovo's, was not a takeover battle at all, but a private negotiation.
China's companies will learn the rules of the game they are now staring to play-and Western investment banks are lining up to relieve them of hefty fees in return for teaching them. The companies' government-often their their senior shareholder as well-wants them to acquire foreign assets, notably the natural resources and consumer brands and expertise that they cannot grow rapidly at home.
China's national interest is its imperative, and cross-border M&A is the way to fulfill it. China's largest companies-the ones most likely to be doing the big deals-may be mostly state-funded and have managers largely hand-picked in Beijing. But they will have to learn how to win at this most capitalist of games, M&A. The way to do that is not, as CNOOC did, by launching big, high-profile bids in politically sensitive industries, but to do a bunch of smaller deals that can actually get done. Small wins lead to larger victories.
mozda, ali "...dug je put do vjecnosti, i mi ga prelazimo sutke i u miru,...." (B. Stulic)
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