Former Unocal CEO Sheds Light on Failed CNOOC Merger

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Former Unocal CEO Sheds Light on Failed CNOOC Merger

LOS ANGELES -- Unocal Corp. would have agreed to be acquired by Chinese oil firm CNOOC Ltd., despite fierce U.S. political opposition -- if the Chinese side had raised its bid in August, Unocal's former CEO said in an Associated Press report.

"Our board wouldn't have backed away," Charles R. Williamson, the former Unocal CEO, said at a meeting sponsored by the University of Southern California's Marshall School of Business, according to the report.

Williamson also said he was "appalled" by some of the objections raised to the deal by U.S. politicians who told him they were worried about the Chinese acquiring Unocal's "submarine detection technology" or its "deep drilling cavitation technology," according to the AP.

"I used to be the head of technology, and I never heard of this stuff," he said.

In the end, CNOOC withdrew its offer, and Unocal went ahead with an earlier stock and cash deal to be acquired by U.S.-based Chevron Corp. for about $18 billion, which was lower than CNOOC's $18.4 billion offer.

Ultimately, it was a combination of uncertainty created by congressional opposition to the deal combined with bruised egos on the part of CNOOC that led to the collapse of talks between the two companies, Williamson said in the AP report.

Unocal agreed to be acquired by Chevron in April, after CNOOC failed to submit a formal bid. In June, when CNOOC finally made an all-cash offer that topped Chevron's bid, Unocal imposed a series of difficult conditions before agreeing to talk to CNOOC, which is 70 percent owned by the Chinese government.

"The first thing that worried us was the enforceability of the contract," Williamson told the AP.

"We didn't want them to be able to breach the contract. It scared us."

Unocal insisted that CNOOC, which had few U.S.-based assets, place $2.5 billion in cash in an escrow account in a U.S. bank and agree to abide by Delaware law, according to the news source.

The trustworthiness of the Chinese legal system is a key factor to any future deals with companies based in China, Williamson said.

"I wouldn't have risked arbitration in China because that was a black hole for us," he said in the AP report. "But that will change with time."

According to the AP, Unocal also insisted CNOOC agree to sell all its U.S. assets if needed for regulatory approvals. Finally, Unocal made CNOOC agree to shoulder the $500 million breakup fee Unocal would have to pay Chevron if that merger agreement was broken.

"CNOOC was insulted by this, I'll be honest," Williamson said, speaking about all the conditions Unocal imposed.

"They were also worried about precedent for the next U.S.-China transaction," he said in the report.

The potential takeover of Unocal by CNOOC would have required approval by the Committee on Foreign Investments in the United States, a panel that reviews foreign investments in U.S. companies.

According to the AP, one of the biggest issues that has to be resolved for future Chinese takeovers of U.S. companies is how to deal with a state-owned company that has access to government funding and other resources not available to a privately owned firm.

"I think it's an issue not just for the Chinese, it's an issue that is going to face a lot of state-owned enterprises that want to invest here," he told AP.