Tuesday, August 2, 2005

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Chevron wins the rent-seeking war

David Barboza reports in the New York Times that the China National Offshore Oil Corporation (CNOOC) has withdrawn its offer for Unocal:

The giant Chinese oil company Cnooc today ended its $18.5 billion takeover bid for the Unocal Corporation of America, citing fierce political opposition to its bid in Washington that it called “regrettable and unjustified."

The decision, which was announced this morning in New York, ends a fierce takeover fight between Cnooc and the Chevron Corporation, which have both been vying to acquire Unocal’s valuable oil and natural gas assets, much of which are based in the United States and Asia.

The move now clears the way for the Chevron Corporation of America to finalize its acquisition of Unocal for about $17 billion in cash and stock, much less than the Chinese bid but an offer that comes with none of the political opposition that Cnooc has encountered in the United States....

People familiar with Cnooc’s decision to pull out of the bidding say the Chinese company was reluctant to increase its own initial bid because Washington seemed unlikely to approve the deal and had even adopted legislation that would slow the approval process. Unocal’s board of directors had also done little to favor Cnooc.

Now I don't doubt that a great deal of hostility towards CNOOC's takeover bid had to do with a fear of China's rising power -- but Barboza's story suggests that it also might have been because while Chevron did not outbid CNOOC for Unocal, they did outbid CNOOC for much Congress:

Cnooc officials pleaded with Washington and Unocal officials, saying that they were attempting a “friendly” takeover of Unocal with a higher bid, and would even pay the $500 million fee if Unocal agreed to break its earlier agreement with Chevron.

Cnooc officials also said they were willing to dispose of most of the United States-based assets of Unocal if that was necessary for Washington’s approval.

Cnooc even hired high-powered Washington lobbyists and had the backing of two of Wall Street’s most powerful investment banks, Goldman Sachs and J..P. Morgan, to help push its deal.

But Chevron came equally armed with Morgan Stanley and Lehman Brothers. A host of Congressmen who were recipients of Chevron political money also argued in Washington against the Cnooc deal, saying it could threaten America’s long-term energy interests. (emphasis added)

Chevron played this game well -- they spent way less that the $1 billion gap between their offer and CNOOC's, but by pushing Congress in a direction it probably wanted to go anyway, still got Unocal.

Whether Unocal's shareholders benefited is another question entirely.

posted by Dan on 08.02.05 at 12:08 PM