Chinese bid for Unocal

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Jun 3, 2003
West of Rhode Island
Chinese bid for Unocal draws quick, high-powered criticism

Two former CIA directors and a former chairman of the Joint Chiefs of Staff sounded the alarm Thursday about the proposed purchase of U.S. oil company Unocal by a Chinese government-controlled firm.
The critics included top-level members of the Reagan, first Bush and Clinton administrations.

The China National Offshore Oil Corp. (CNOOC), China's third-largest oil producer, made a hostile $18.5 billion bid Thursday for Unocal. It's the communist nation's most ambitious attempt to acquire a Western company and sets up a possible showdown with U.S. politicians over national security.

Robert Gates, who served as director of the CIA under the first president Bush said, "It does cause me some concern" and added that "it's part of a broad-based effort" by the Chinese to gain a foothold in the U.S. economy. His concerns were echoed by James Woolsey, who served as CIA director under President Clinton. "This is a conscious long-term effort to take over ... as much of the American economy as possible," he said.

Also criticizing the move were retired Gen. P.X. Kelley, chairman of the Joint Chiefs of Staff under Ronald Reagan, and Carol Browner, who was the EPA Administrator in the Clinton administration. They all appeared at an energy policy discussion in Washington sponsored by two private groups.

The only dissenter was Richard Haass, who was president of the Council of Foreign Relations and was a top-ranking State Department official under former president Bush. Haass said that allowing a Chinese company to buy into an American firm would "make China more of a capitalist player."

The offer by Chinese state-owned CNOOC 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, already the world's third-biggest oil importer behind Japan and the USA.

The offer sets up a possible takeover battle with Chevron, which has proposed to buy Unocal for a lower price of $16.6 billion — a deal Unocal's board already accepted.

Until recently, foreign hostile takeovers by Chinese companies were almost unheard of. The shift reflects China's new willingness to adopt Wall Street's more aggressive tactics.

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

[ June 24, 2005, 03:54 PM: Message edited by: 59 Vetteman ]
We are dealing with the same issues in Canada.

Chinese prospectors are running all around the countryside up north apparently, doing their own mineral exploration, especially uranium. The Chinese also tried to buy up much of the world's nickel supply -- nickel, of course, being a very important metal for stainless steel and most high-performance alloys.
It's funny how your article began. Here's how the New York Times posted it yesterday. No mention (I don't think) of some "flag" raised by the CIA

SHANGHAI, Thursday, June 23 - One of China's largest state-controlled oil companies made a $18.5 billion unsolicited bid Thursday for Unocal, signaling the first big takeover battle by a Chinese company for an American corporation.

The bold bid, by the China National Offshore Oil Corporation ( CNOOC), may be a watershed in Chinese corporate behavior, and it demonstrates the increasing influence on Asia of Wall Street's bare-knuckled takeover tactics.
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Associated Press

Seventy-three percent of Unocal's natural gas reserves are in Asia; this platform is in the Gulf of Thailand.

The offer is also the latest symbol of China's growing economic power and of the soaring ambitions of its corporate giants, particularly when it comes to the energy resources it needs desperately to continue feeding its rapid growth.

CNOOC's bid, which comes two months after Unocal agreed to be sold to Chevron, the American energy giant, for $16.4 billion, is expected to incite a potentially costly bidding war over the California-based Unocal, a large independent oil company. CNOOC said its offer represents a premium of about $1.5 billion over the value of Unocal's deal with Chevron after a $500 million breakup fee.

Moreover, the effort is likely to provoke a fierce debate in Washington about the nation's trade policies with China and the role of the two governments in the growing trend of deal making between companies in the countries.

This week, a consortium of investors led by the Haier Group, one of China's biggest companies, moved to acquire the Maytag Corporation, the American appliance maker, for about $1.3 billion, surpassing a bid from a group of American investors.

Last month, Lenovo, China's largest computer maker, completed its $1.75 billion deal for I.B.M.'s personal computer business, creating the world's third-largest computer maker after Dell and Hewlett-Packard.

After years of attracting billions in foreign investment and virtually turning itself into the world's largest factory floor, China appears to be nurturing the growth of its own corporate giants into beacons of capitalism. China wants to be a player on the world stage, and it is eager to have its own energy resources, its own multinational corporations and its own dazzling corporate names.

And some of China's biggest companies are now on the hunt, trying to snap up global treasures.

"If there's an asset up for sale anywhere in the world, people are looking to China, particularly if there's a manufacturing element involved," said Colin Banfield, who runs the mergers and acquisitions practice at Credit Suisse First Boston in Asia. "And if these two deals go through this year, no one is going to doubt the credibility of the Chinese corporates when it comes to M & A."

The deal making and bidding wars are all the more remarkable because they involve Chinese companies taking on American multinationals in a series of transactions certain to be a boon for Western lawyers and investment bankers, many of whom have been betting hundreds of millions of dollars on China's rise.

Indeed, CNOOC is being advised by an army of bankers from Goldman Sachs, J. P. Morgan Chase and N M Rothschild & Sons of Britain.

In a response, Unocal said in a statement that its board would evaluate the offer, but that its recommendation of the deal with Chevron "remains in effect."

CNOOC's bid faces an uphill battle, with hurdles that probably rise above those usually confronting a corporate bidder. Already, lawmakers in Washington are questioning whether the Bush administration should intervene to block the bid for Unocal, which was founded in 1890 as the Union Oil Company of California.

Two Republican representatives from California, Richard W. Pombo and Duncan Hunter, wrote a letter last week to President Bush, after speculation concerning the deal arose, urging that the transaction be scrutinized on the grounds of national security.

They wrote: "As the world energy landscape shifts, we believe that it is critical to understand the implications for American interests and most especially, the threat posed by China's governmental pursuit of world energy resources. The United States increasingly needs to view meeting its energy requirements within the context of our foreign policy, national security and economic security agenda."

Energy Secretary Samuel W. Bodman said at a meeting of the National Petroleum Council late Wednesday that the government's review of the deal would be "truly a complex matter," according to Reuters.

In Beijing, Liu Jianchao, a spokesman for the Foreign Ministry, told reporters on Tuesday that "this is a corporate issue," according to Bloomberg News. "I can't comment on this individual case," Mr. Liu said, "but I can say we encourage the U.S. to allow normal trade relations to take place without political interference."

TCL, a Chinese company that began by making cassette tapes in 1981, is suddenly the world's biggest television set maker, after its acquisition last July of the television business of Thomson of France, which owned the old RCA brand.

Chinese companies still have a long way to go to become global giants that can compete head-to-head with Toyota, Siemens or General Electric. Most of the China deals are small in value - about $1 billion to $2 billion - when compared with big American or European deals.

Whether CNOOC's bid will succeed on it merits is unclear. It is interested in Unocal, once known for its 76 brand, less for its exploration and production in North America than for its huge reserves in Asia. Twenty-seven percent of Unocal's proven oil reserves and 73 percent of its proven natural gas reserves are in Asia, according to Merrill Lynch.

To succeed, CNOOC will have to persuade Unocal's shareholders to vote against their deal with Chevron. The new deal would then face a shareholder vote.

Even though CNOOC's offer is worth $1.5 billion more than Chevron's, some shareholders could still decide that the regulatory review process and the time required to complete a deal with CNOOC would pose too great a risk, given the size of the offer.

Chevron, which could raise its bid to counter CNOOC, is racing to complete its deal and submit it to a shareholder vote as early as August.

CNOOC's all-cash offer values Unocal at $67 a share. Chevron's cash and stock offer values Unocal at $61.26 a share, based on Chevron's closing price on Wednesday of $58.27 a share. Shares of Unocal jumped 2.2 percent, to $64.85, as investors anticipated CNOOC's higher bid.

In CNOOC's letter to Unocal, it went to great lengths to say that its bid was friendly, despite being unsolicited. "This friendly, all-cash proposal is a superior offer for Unocal shareholders," wrote CNOOC's chairman and chief executive, Fu Chengyu.

Trying to assuage concerns of some in Washington, CNOOC pledged to continue Unocal's practice of selling all of the oil and gas produced in the United States back to customers in the United States. The company also said it would retain substantially all of Unocal's employees in the United States.

"I can't comment on this individual case," Mr. Liu said, "but I can say we encourage the U.S. to allow normal trade relations to take place without political interference."

You slimy *name of filing tool*. It's ok for you, but not us?
Any CEO or shareholder that authorizes this should be hung.
It's capitalism, isn't it? You should be able to buy anything that's for sale as long as you have the money.

I don't see what the problem is if you look at the issue as a purely economic case. And if the US government is really interested in free markets as it preaches, it shouldn't have any problems with this.

Originally posted by kloppilt:
You should be able to buy anything that's for sale as long as you have the money.

Like crack rocks? Pirated copies of DVDs? Counterfeit auto parts?

What else should I be able to buy that's for sale?
China as well as India and other developing countires are essentially buying up the United States at an unprecedented rate. What's the difference in the long run with Unocal.
Stopping it would be like throwing an ice cube on a forest fire; security issues included.
Quit buying imported goods!
As a son of a steelworker,I laugh at the recent gripes about unfair trade that envelops high-tech.If a foreign gov't subsidizes a company for profit,how can free trade exist???

Unfair trade?
Talk to the hand,the face ain't listening.
This company also makes the rare earth magnets used in missile guidance systems. Submarines also use these magnets. Hmmm....

The stench is getting unbearable.
Well, we keep sending them all these slips of green paper ...and we want them to put them back.

Originally posted by kloppilt:
It's capitalism, isn't it? You should be able to buy anything that's for sale as long as you have the money.

Wow, capitalism supports slavery. I have the money you have the slave....Or better yet, we need more body parts for people. How much for your liver?

Again the deficit of money over any value system.

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