6.30.2005

Chinese taking over

IPFreely sends a note about this WSJ article (subscription required) on China's Cnooc Ltd.'s bid for Unocal, and rival bidder Chevron's lobbying to stop it.

The battle for Unocal Corp. is shifting to Capitol Hill, where Chevron Corp. is working to derail a rival bid for the energy company by China's Cnooc Ltd.

Chevron, which saw its $16.59 billion cash-and-stock bid for Unocal topped byan $18.5 billion cash offer from the Chinese state-owned company last week, has played a direct role in drafting and circulating letters from members of Congress asking the Bush administration to examine and potentially block the Cnooc bid, according to several people familiar with Chevron's activities in Washington.

In a sign of congressional concern, House Republican leaders are planning tobring to the floor today a resolution urging the administration to give the Cnooc bid close scrutiny. In addition, the House may vote as early as today on a budget amendment that seeks to bar the Treasury Department from taking any action approving Unocal's sale to Cnooc.

Chevron's strategy seems to be: Make Cnooc's bid appear destined for a rigorous and lengthy regulatory review. That, in turn, could make Chevron's fast-track bid preferable to Unocal shareholders, even though Chevron is offering less money.

"Why not focus shareholders on the fact that there is a lot of uncertainty about Cnooc's ability to close? If I'm Chevron, that is the cheapest and mostexpeditious way to go," said Claire Farley, chief executive of Randall & Dewey,an energy-advisory firm that is part of investment bank Jefferies Group Inc.

While Cnooc has marshaled its own team, including the law firm Akin Gump and the communications firm Public Strategies Inc., the unfolding fight underscores Chevron's advantages in the nation's capital. The San Ramon, Calif., company has deep political roots and an established reputation. Its board is salted with political heavyweights: Carla Hills, the U.S. trade representative during the first Bush presidency, who retains close ties to the current White House; and former Sen. Sam Nunn, a moderate Georgia Democrat respected in both parties on national-security issues.

Moreover, Chevron has been able to tap into a rising protectionist stance in Washington amid heightened concern over China's rise as an economic power. To help spread its message, Chevron is deploying former government insiders like Wayne Berman of the Federalist Group, a Commerce Department official during the first Bush administration and a big fund-raiser for the current President Bush. Another Federalist Group staffer, Drew Maloney, a former top aide to Texas Republican Rep. Tom DeLay, the House majority leader, also is pressing Chevron's case on Capitol Hill.

The Chevron lobbyists plot strategy daily on an 8:30 a.m. conference call led by Lisa Barry, the company's general manager for government affairs, according to a person with knowledge of the process. Ms. Barry previously held senior positions at Time Warner Inc. and the Commerce Department. Donald Campbell, a spokesman for Chevron, said, "We do
not comment on meetings or discussions we have in Washington."

Lost in all the rhetoric beginning to pour out of Washington is that a Cnooc acquisition of Unocal, based in El Segundo, Calif., would be unlikely to have much of an effect on global energy markets. Unocal's best assets -- oil and natural gas fields in Asia -- represent a very small percentage of global production and much of the energy produced from these fields would likely be
bought by the Chinese regardless of which company owns them.


I guess it's natural for Chevron to use any available tactics to win the bidding war, but I'm not that concerned about Chinese ownership of a relatively small oil company.

Transfers of assets are a forseeable result of huge trade imbalances. We are buying billions of dollars worth of goods from the Chinese, and they have to put those dollars somewhere. For the past several years, those dollars have gone largely into U.S. Treasury bonds.

Now the Chinese appear to be getting tired of measly 4% yields on a depreciating U.S. Dollar. Where else to invest? Sickly Europe? The real estate bubble, as the Japanese did to disastrous effect in the 1980's? No, the new target is U.S. equity. China's Lenovo recently bought IBM's PC business. Cnooc is trying to buy Unocal. Expect many more bids for U.S. companies, and expect the phenomenon to be very positive for the U.S. stock market.

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