CNOOC launches bid for Unocal take-over
By Xie Ye (China Daily)
Updated: 2005-06-24 05:38

China's largest offshore oil and gas producer CNOOC Ltd yesterday signalled a take-over battle with Chevron by offering a US$18.5-billion all-cash bid for Unocal, the United States' ninth-largest oil and gas producer.

China National Offshore Oil Corp. (CNOOC) chairman Fu Chengyu is shown in this picture taken in Beijing September 25, 2002. [newsphoto]

If successful, CNOOC's bid will be the largest ever overseas acquisition by a Chinese firm.

But the offer will face a challenge from Chevron, which reached an initial merger agreement with Unocal in April, and a bidding war could ensue.

Unocal said it would evaluate the CNOOC offer but made it clear that its board would stick by a recommendation on a deal with Chevron.

The offer from CNOOC - the No 3 oil and gas company in China - which is majority-owned by the State, is also expected to face obstacles from US authorities. Two Congress members have urged the Bush administration to thoroughly review any bid by CNOOC, saying the deal raises concerns about US jobs, energy production and energy security.

But Exxon Mobil Chairman Raymond Lee told a Reuters energy summit on Tuesday that any congressional influence would be a "big mistake" and could come back to haunt US companies trying to do business in China.

Following a six-hour board meeting on Wednesday night, CNOOC yesterday offered US$67 in cash per Unocal share. The bid represents a premium of US$1.5 billion over the value of Chevron's April cash-plus-stock offer.

Unocal's shareholders are expected to vote on both offers in early August. But before then, CNOOC has to win approval from US authorities and may also have to pay a US$500-million break-up fee to Chevron.

Unocal is much sought after for its prized Asian gas assets - mostly in Indonesia, Thailand and the Caspian Sea - where 70 per cent of its proven oil and gas reserves are.

China National Offshore Oil Corporation's (CNOOC) SZ36-1 central platform in the Bohai Bay of China is seen October 3, 2004. [newsphoto]

A merger is expected to more than double CNOOC's oil and gas production; and increase its reserves by nearly 80 per cent.

Chevron maintained that it wants to go ahead with its April agreement with Unocal

"A transaction with Unocal is highly likely to close," since it has already received the green light from US anti-trust authorities, and is nearing completion of the process to enable a vote by Unocal stockholders, Chevron said in a statement.

CNOOC said its bid is superior to the Chevron offer and urged US authorities not to interfere with the deal. "If you look at the company's history, all the deals we've made have been value-driven," said CNOOC's Chairman Fu Chengyu yesterday during a teleconference.

"Interests of shareholders are always the first priority when we do business...We decided to bid for Unocal because we believe it is worth it.

"We don't believe the deal will hurt the national security of the United States. The US is the champion of globalization. It encourages free trade. US companies are free to buy assets in China. We hope they adopt the same philosophy."

To allay US concerns, CNOOC promised not to lay off workers at Unocal, which the company says is in contrast to Chevron's proposal, under which workers would be axed to save costs.

CNOOC also said the transaction will not adversely affect the US oil and gas market since Unocal's US oil and gas production will continue to be sold in the local market, and it will continue to invest in the Gulf of Mexico.

Unocal's US oil and gas production accounts for less than 1 per cent of the country's total consumption.

US Energy Secretary Sam Bodman said on Wednesday that CNOOC's bid would trigger a "complex" government review.

Many industrial watchers, however, warned that blocking CNOOC's bid may backfire on US companies investing overseas.

(China Daily 06/24/2005 page1)

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