CNOOC Moves Closer To Abandoning Bid

[HenryTo]

Looks like Mr. Fu made a "slight miscalculation" when he initially decided to make a bid for Unocal - we will most probably find out early this week.
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Cnooc Moves Closer
To Abandoning Bid

Unocal Offer Appears
To Be Dropped This Week;
'Odds Don't Look Good'
By MATT POTTINGER in Beijing and KATE LINEBAUGH in Hong Kong
Staff Reporters of THE WALL STREET JOURNAL
July 31, 2005 3:03 p.m.

Cnooc Ltd. is poised to decide early this week on whether to abandon its bid for U.S. oil producer Unocal Corp., and appears likely to do so, say several people close to the Chinese company.

While these people won't rule out the possibility Cnooc will sweeten its $18.5 billion cash bid in an attempt to outmaneuver a competing offer by Chevron Corp. of the U.S., they say there is a far greater likelihood that Cnooc will abandon its takeover attempt, which has been dogged by opposition in the U.S. Congress.

"The odds right now don't look good," said an adviser to Cnooc, China's largest offshore oil and natural-gas producer. "Realistically speaking, it's probably over."

Chevron already has struck a deal with Unocal's board to buy the company for $17.6 billion in cash and Chevron stock. Unless Cnooc raises its bid, Unocal shareholders are likely to approve the Chevron deal in a vote scheduled for Aug. 10. That is because Cnooc's offer, while nominally higher than Chevron's, is viewed by many institutional investors as less valuable because of its political liabilities. Congressional opposition and regulatory delays mean Cnooc would need at least several months longer than Chevron to close a deal, and Unocal investors would want to be compensated for that time.

The decision to proceed with or abandon the takeover effort rests above all with the Chinese company's chairman and chief executive, Fu Chengyu. People who know him say Mr. Fu has, from the start, been the driving force behind Cnooc's hopes to acquire Unocal.

In a conference call last Thursday, Mr. Fu briefed fellow Cnooc board members. No decision was made on whether to proceed with the bid, and directors agreed it would be worth waiting until this week before making a decision, according to a person close to Cnooc.

"You've come this far and you don't want to go home unless you have to," the person said. "Once you pull out, you can't go back. So there's no downside to waiting a couple more days."

Cnooc's advisers have presented Mr. Fu with scenarios for a new bid exceeding $70 per Unocal share, people familiar with the matter said. Cnooc currently is offering $67 a share.

But the American-educated, 54-year-old Mr. Fu recently has shown signs of having doubts, said a person who knows him. The negative response by the U.S. Congress, which has adopted legislation that would delay a Cnooc acquisition of Unocal, was fiercer than Mr. Fu had expected, this person said. After talks with the Unocal board failed to produce a deal in July, Mr. Fu gave a speech to Cnooc employees saying the experience has taught him that political risk isn't limited to developing and war-torn countries, but also exists in the U.S., according to a person briefed on the speech.

Mr. Fu could face pressure at home, too, some analysts have suggested. At a time when Washington and Beijing face disputes over bilateral trade and share suspicions about each other's military ambitions, a protracted conflict between Cnooc and Congress could invite pressure from inside Beijing for Cnooc to abandon its takeover attempt. Mr. Fu has insisted that Cnooc's pursuit of Unocal is independent of the Chinese government. Even so, it wouldn't be difficult for Beijing to exert influence.

The Chinese government effectively controls Cnooc through the listed company's wholly state-owned parent, China National Offshore Oil Corp. And Cnooc's executive directors, including Mr. Fu, are all members of China's ruling Communist Party.

--Russell Gold in Dallas contributed to this article.

Write to Matt Pottinger at matt.pottinger@wsj.com and Kate Linebaugh at kate.linebaugh@wsj.com

[nodoodahs]

A news item mentioned that U.S. congressmen who received campaign contributions from CVX tended to be anti-CNOOC. Well, duh. What do you think campaign contributions are for, anyway?

Pick the country with the "command and control economy" in this instance. "And the pot saith, 'kettle, thou art black!'"

All those dollars that China holds in reserves, and all those dollar-denominated bonds that China holds ... do you think that China has gotten the message sent by the U.S. in this instance? In case you're wondering, that message is "your dollars are no good here."

<disclosure: I am long CVX and this is actually good news for me personally>
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.