The board of the Chinese National Offshore Oil Co (CNOOC) is planning to decide early this week whether to raise its bid for US-based Unocal or abandon its takeover effort, executives close to the company said over the weekend.
Several members of CNOOC's board and management have expressed doubts in recent days about the wisdom of continuing to pursue the bid in the face of mounting opposition in Washington, but it remained unclear Sunday which way the board would vote.
If CNOOC does decide to raise its bid, the company and its advisers have determined that to win approval from Unocal's board, the bid would have to go to about US$72 a share, from the current US$67 a share.
Unocal has already accepted an offer from Chevron worth about US$17 billion, or US$64 a share, dismissing CNOOC's higher offer as too politically risky.
Unocal and CNOOC were close to an agreement earlier this month, according to filings made last week by Unocal. Unocal's board was willing to accept the "considerably greater" risk of CNOOC's offer compared with Chevron's bid if CNOOC raised its offer, according to the filings. Talks broke down when CNOOC refused to raise its bid further and Chevron came up with an offer that was larger than its first proposal, originally valued at US$16.8 billion.
The timing of CNOOC's decision is being driven, in part, by a vote by Unocal's shareholders scheduled for Aug. 10. If Chevron adjusts its bid anytime after Thursday, then that date would change. CNOOC could raise its offer and play a high-stakes game of brinkmanship, forcing Chevron to change its bid and resetting the clock on a vote.
But CNOOC is sensitive about raising its bid beyond US$70 because it worries that such a high offer would give more ammunition to politicians in Washington who say its efforts are being driven by national interests and not by economics.
For more than a month, the fate of Unocal has been a focal point of trade relations between the US and China. CNOOC's proposal to buy an American company with roots dating to 1890 is part of China's increasingly visible efforts to build global oil and gas companies and compete with other oil importers, including the US, to secure its energy supplies.
Foreigners seeking to buy American companies with assets that raise national security concerns are subject to the government's scrutiny. CNOOC, 70 percent owned by the Chinese government, needs the approval of the Committee on Foreign Investment in the US, a multi-agency government group headed by the secretary of the treasury. That review, which can last as long as 90 days, ultimately gives the president the option to block a takeover. Usually, however, the Committee on Foreign Investment designates specific assets that cannot be part of the transaction.
A draft agreement between CNOOC and Unocal, which was made public as part of Unocal's filing with the Securities and Exchange Commission on Monday, shows that CNOOC was ready to sell all of Unocal's domestic assets if Committee on Foreign Investment required it to do so.
That willingness to appease regulators may have come too late to deflect stiff political opposition in Washington. This week, Congress formally stepped in by proposing a four-month study of how China's energy demands affect the United States, in light of CNOOC's bid. The proposal was specifically intended to stall CNOOC by lengthening the review process.
The assets that CNOOC is proposing to spin off are Unocal's production assets in the US, which are small compared with most of its rivals and mostly concentrated in the Gulf of Mexico.
The US accounts for a third of Unocal's oil and gas reserves. Outside the US, the company conducts business mostly in Asia, where it produces mostly natural gas in Indonesia, Thailand, Myanmar, Bangladesh and Azerbaijan.
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