A top executive at Chevron on Friday sharply criticized the US$18.5 billion bid by the China National Offshore Oil Corp (CNOOC, 中國海洋石油) for the US oil company Unocal, calling it an inferior combination that would end up producing less oil and natural gas than a Chevron acquisition and turn Unocal into a company "strategically focused on China."
The executive, Peter Robertson, Chevron's vice-chairman, also accused the Chinese of not competing fairly.
"Clearly, this is not a commercial competition. We are competing with the Chinese government, and I think that is wrong," Robertson said.
But Chevron, despite an ostensibly lower bid, may well hold a stronger position than the Chinese company in the unfolding takeover battle. On Friday Robertson said that Chevron believes it is under no immediate pressure to improve its offer, even though the bid by the Chinese firm is sharply higher than Chevron's offer and is all cash.
The Chinese offer "is not a knockout blow," Robertson said. "We are going to win this one. I am convinced of it."
On Wednesday CNOOC, China's third-largest state-owned oil company, made an audacious move to woo Unocal away from Chevron. On the heels of other moves by Chinese companies to take over US companies, the struggle for Unocal has quickly been elevated into a test of Chinese-US strategic and economic relations far beyond a standard corporate deal.
Already, more than 40 members of Congress have signed a joint letter to US President George W. Bush, urging the administration to conduct a through review of the Chinese bid.
Meanwhile, some prominent industry executives have warned against political meddling in a commercial deal. Lee Raymond, Exxon's chief executive, said on Thursday that it would be a "big mistake" for Congress to interfere with a bid by CNOOC that could backfire on American companies seeking to do business abroad.
But for all the political attention the Chinese company's bid is receiving, it may never overcome a number of basic business obstacles that stand in the way. Chevron's ability to hold the line rests in large part on a provision in the merger agreement it signed with Unocal in April that gives Chevron the right to call a shareholder vote on its offer before Unocal can allow its shareholders to consider any other deal. Chevron is expected to call such a vote of Unocal shareholders in August.
A spokesman for CNOOC said the company made its decision to bid for Unocal "based solely on shareholder value considerations."
Analysts agreed with Robertson that the Chinese bid is not high enough to dissuade Chevron.
"The Chinese could have discouraged Chevron from chasing them, but they kept their bid within striking distance," said Fadel Gheit, an analyst at Oppenheimer & Co, a brokerage firm. Gheit owns both Unocal and Chevron shares and the firm is recommending both stocks.
Indeed, CNOOC is more likely to be pressed to raise its offer at least once to try to derail approval of Chevron's offer.
The other factor in Chevron's favor is time. Chevron could complete a deal almost immediately after approval from shareholders. The Chinese company, on the other hand, could not hope to complete a deal until at least six months after Unocal shareholders rejected the Chevron offer.
And even that time frame might be considered optimistic, given the prospect of a government review over national security issues that have been raised by this deal. Unocal shareholders would also have to face the risk that if they voted down the Chevron deal, at that point there would technically be no other deal on the table. CNOOC is under no legal obligations to make its bid.
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