Sinopec (中國石化), with its US$7.2 billion bid for Addax Petroleum, is seeking crucial production capacity and coveted reserves in West Africa and the Middle East to help balance its heavy reliance on crude oil processing.
News that Addax’s board had approved the offer by Sinopec, formally known as China Petroleum & Chemical Corp, helped push the Beijing-based company’s shares up 1.6 percent yesterday to 10.69 yuan in early trading.
The deal would be the largest ever overseas takeover by a Chinese company, although is only half the size of last year’s acquisition by Aluminum Corp of China (Chinalco, 中國鋁業), with Alcoa Corp, of a 12 percent stake in global miner Rio Tinto PLC. That deal was worth US$14.3 billion.
The proposed acquisition must still be approved by regulators.
LOSSES
But a takeover would help cushion Sinopec — China’s largest refiner by capacity — against spikes in global crude oil prices that have caused it billions in losses in recent years due to caps on domestic fuel prices.
China is aggressively pursuing major acquisitions of resources, often running into heavy resistance in the host countries of its takeover targets.
Four years ago, China National Offshore Oil Company Ltd (中國海洋石油) withdrew a US$18.5 billion bid for the Unocal Oil Company because of a tremendous backlash in Washington.
This month, Anglo-Australian miner Rio Tinto dropped plans for a US$19.5 billion investment from Chinalco amid a political firestorm in Australia over resource acquisitions by Chinese companies.
But state-owned Chinese companies like Sinopec persist in seeking investments overseas that Beijing needs to ensure access to resources to fuel economic growth.
Geneva-based Addax produced 134,700 barrels a day of crude oil in the first quarter of this year.
Sinopec said it viewed the deal as a “tranformational acquisition.”
“We trust that this acquisition suits Sinopec’s strategic goals, that it will strengthen Sinopec’s presence in west Africa and Iraq and is a major step in its globalization,” it said in a statement posted on the company’s Web site.
Addax’s oil and gas exploration and production is based mainly in west Africa and the Middle East, including joint operation of the Taq Taq field in Iraq’s Kurdish region with Turkey’s Genel Enerji.
There is no guarantee that the deal will go through.
PROPOSALS
Addax, which is listed on exchanges in London and Toronto, said it retains the right to consider any proposals superior to Sinopec’s US$46.17 per share offer.
But the price is a 47 percent premium to the closing market price for Addax on June 5, the day prior to its public announcement of sales talks, and Sinopec promised to keep Addax’s top management intact, Addax said.
“We are pleased that Sinopec has recognized the highly attractive asset portfolio and exceptional team that we have assembled at Addax Petroleum,” CEO Jean Claude Gandur said in a statement.
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