China National Offshore Oil Co. (CNOOC) filed a review request with the Committee on Foreign Investment in the United States (CFIUS) regarding its proposed $18.5 billion purchase of Unocal Corp., less than a day after the House of Representatives voted to block the bid.
The CFIUS's regulations require that El Segundo, CA-based Unocal respond to questions on the transaction within seven days.
"We have given Unocal certainty with regard to our proposal, which is all cash, and assurances with regard to the regulatory approval process," said Yang Hua, CNOOC CFO. "Once we have an opportunity to proceed with a CFIUS review, we remain confident that we will be able to obtain Exon-Florio clearance by addressing the Committee's concerns. We are cooperating fully and look forward to a formal review conducted in an expeditious manner."
Hua said the CFIUS review is important because it will provide the many interested parties and Unocal's shareholders with "timing certainty" regarding the deal, which is a competing offer to one made by Chevron Corp. "This filing gives CNOOC the opportunity to comply with all U.S. rules and regulations in an open and transparent manner, and to fully discuss our proposal," he said.
Hua said he believes that "once all the facts are known and the commercial purpose and terms of the transaction are fully understood, many initial misimpressions will be corrected, and many doubts and questions will be favorably resolved."
However, the transaction already faces significant opposition. On Thursday, the House voted 333-92 to add an amendment to a spending bill stopping the Treasury Department from spending any money in its review of the CNOOC bid. The House also voted 398-15 in favor of a resolution for the Bush administration to immediately review the transaction. The House's vote reflects concern over whether the Chinese company's access to U.S.-developed proprietary technologies would be a threat to national security.
House Energy and Commerce Committee Chairman Joe Barton (R-TX) said Friday that his committee intends to hold a hearing on the bid after the July 4 recess. Barton said his opposition arises from the fact that "CNOOC is a front company for the Communist Chinese government." About 70% of the equity in CNOOC is owned by the Chinese government and the money that would be used to purchase Unocal would come directly from the Chinese government in the form of a loan.
"If Unocal was trying to buy the CNOOC, they could not do it because Chinese law does not allow a foreign company to have a controlling interest in a company in China," Barton noted.
Meanwhile, Unocal CEO Chuck Williamson told employees during the week that "at this time, our board continues to recommend approval of the Chevron proposal."
Unocal's management team "must evaluate the competing CNOOC proposal" so that the company's shareholders "understand the comparative merits of the two offers," said Williamson. However, he noted that the shareholder vote to consider Chevron will be Aug. 10 -- well ahead of any attempt by CNOOC to move for a vote of its own.
Williamson's letter, which was filed with the Securities and Exchange Commission (SEC), said Unocal's board "will need to understand the risks and value associated with both proposals in order to decide whether to withdraw its current recommendation for the Chevron proposal." Chevron has offered Unocal $16.3 billion in a cash-and-stock deal, while CNOOC has offered $18.5 billion in cash.
On Wednesday, Chevron's acquisition of Unocal was approved by the SEC, the final regulatory step to be taken before shareholders may consider the merger. The SEC also declared effective Chevron's Form S-4 documents and amendments, which were filed on May 26. These documents contain a proxy statement for a special meeting of Unocal shareholders. Unocal set Wednesday (June 29) as the record date for the vote.
CNOOC is China's state-owned petroleum company. The company owns net proved reserves of 2.2 billion boe and daily production of about 382,513 boe. CNOOC also employs 2,524 people and has total assets of RMB94.1 billion (US$11.4 billion).
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