CNOOC ready to dump bid for Unocal

PUBLISHED : Friday, 29 July, 2005, 12:00am
UPDATED : Friday, 29 July, 2005, 12:00am

US$18.5 billion offer may be withdrawn next week due to 'dirty politics in US'

CNOOC is preparing to walk away from its controversial US$18.5 billion bid for Unocal as early as next week because management believes political pressure from Washington has made it impossible to pursue the deal, sources say.

The mainland's third-largest oil company may announce the decision some time next week, ahead of an August 10 vote by Unocal shareholders on rival bidder Chevron's US$17 billion offer.

'There is literally no point to pursue this any further,' said one source who is familiar with the deal. 'The dirty Washington politics has basically killed the deal.'

He and other sources said rising political uncertainty had made it impossible for the company to make any viable and feasible calculations to take the deal forward.

'If even the company were to raise the bid and make this work, how much political premium would it have to pay under such politically explosive circumstances - two, five or seven [US] dollars [per share]?' another source said.

Earlier this week, the US lawmakers passed an amendment that would delay a regulatory review of CNOOC's proposed deal by a few more months, further heightening political uncertainties.

CNOOC has its board's authorisation to raise its bid from US$67 to US$69 per share if necessary, compared with Chevron's sweetened bid of US$63 per Unocal share.

CNOOC's board of directors was due to meet and discuss the bid late last night as part of its regular briefing sessions for directors.

The board could hold a formal meeting soon to approve the bid withdrawal. An alternative exit strategy could be that CNOOC's management simply remains silent and allows the offer to lapse next month.

Either way, it will end two months of high-stakes political and business gameplaying between Beijing and Washington, a saga that began on June 22 when CNOOC offered US$18.5 billion in cash for the US oil company.

The ramifications of a bid withdrawal would likely continue for a long time. In the short term, it would further help reduce political and trade tensions built up over the past few months with the United States. It comes after Beijing's decision last week to revalue its currency by 2 per cent and break the decade-long peg to the US dollar, in direct response to pressure from Washington.

The move would also help smooth the path towards the scheduled September summit between President Hu Jintao and his US counterpart, George W. Bush.

But it would be a major setback for Beijing's 'go-out' policy, which encourages major mainland companies to expand in the international markets.

No one will come out a clear winner from the Unocal saga.

As for CNOOC and its chairman, Fu Chengyu , they have fought a tough and tenacious battle but lost it for political reasons beyond their control.

While rival bidder Chevron may win Unocal, its victory is likely to antagonise the Chinese government and Chinese companies, which potentially are its biggest customers.

And as for Unocal, its shareholders are the biggest losers - they miss out on getting the highest bid.