1.

Companies

Energies Utilities Mining

CNOOC TO BID $67 A SHARE FOR UNOCAL
By Francesco Guerrera and Joe Leahy

Financial Times (UK)
June 22, 2005

http://news.ft.com/cms/s/462dc482-e33b-11d9-b6f0-00000e2511c8.html

HONG KONG -- China National Offshore Oil Corporation is to launch a bid worth almost $20bn for Unocal of the U.S., setting the stage for the largest contested takeover battle involving a Chinese company.

CNOOC's offer, decided at a six-hour board meeting in Beijing on Tuesday, aims to trump an agreed takeover by Chevron.

The move by the state-controlled group underlines the global ambitions of big Chinese companies. It will also be a test of how open U.S. regulators and politicians are to the increasingly common attempts by Chinese companies to make acquisitions in the U.S.

CNOOC decided to bid about $67 a share for Unocal and would offer to take on $1.6bn of the U.S. energy group's debt, people close to the situation said on Wednesday. At that level, the offer would value Unocal at $19.8bn. It would represent a premium of about 11 per cent to Chevron's cash-and-shares offer of $16.4bn plus debt, and a modest premium to Unocal's share price.

However, bankers in New York cautioned that CNOOC would have a difficult task persuading investors that its offer was high enough to compensate for any risk that the deal might be blocked by U.S. regulators.

Robin West, chairman of PFC Energy, a Washington consultancy, agreed. “CNOOC will have serious difficulties closing this deal given legal, bureaucratic and political barriers,” he said.

CNOOC's bid might have to get past the reciprocity provisions of the Mining Lands Leasing Act, as well as the Committee for Foreign Investment in the U.S., Mr West said.

Chevron, anticipating CNOOC's intervention, has already accelerated the timetable for completion of its planned acquisition and now hopes to seal a deal as early as August. “We are unwavering in our intent to see this transaction through to a successful and quick conclusion,” the company said on Wednesday.

Unocal shares have risen more than 50 per cent since the Financial Times first revealed CNOOC's interest in January.

CNOOC is expected to fund the bid, which is worth almost as much as its $22bn market capitalization, through a mix of cash of about $3bn, a bridge loan, and loans from the state-owned parent group. The decision to bid is a personal victory for Fu Chengyu, chairman and chief executive, who faced opposition from non-executive directors.

CNOOC has been competing with Chevron and Italy's Eni to acquire Unocal since the U.S. group in effect put itself up for auction. But CNOOC's non-executive directors were believed to have blocked a formal bid.

The high level of interest in Unocal, whose most prized assets are in Asia, reflects growing global competition for energy resources.

CNOOC's move will be the second this week by a Chinese predator for a U.S. company.

Haier on Monday made a preliminary offer for Maytag, the white goods manufacturer that has agreed a takeover by Ripplewood, the private equity group.

In December, IBM agreed to sell its PC arm to Lenovo, a Chinese computer maker a landmark deal that first signalled China'semerging acquisitiveness.

CNOOC and its advisers, Goldman Sachs and JPMorgan declined to comment.

--Additional reporting by James Politi in New York and Sheila McNulty in Houston

2.

Lex

CNOOC/UNOCAL

Financial Times
June 21, 2005

http://news.ft.com/cms/s/961ddc96-e239-11d9-84c5-00000e2511c8,stream=FTSynd,s01=1.html (subscribers only)

Foreigners may pay over the odds for Chinese assets, but at least China returns the favor. Haier, the Chinese white goods giant, is leading a $1.28bn counter bid for Maytag of the U.S., trumping Ripplewood. More ambitiously, China National Overseas Oil Corporation is hatching plans to blow Chevron's $16.7bn offer for fellow U.S. oil group Unocal off the table.

The finances do not support a straightforward purchase, particularly at this point in the oil cycle. CNOOC's market value is not much bigger than the roughly $20bn it would need to pay for Unocal. Its ability to raise fresh equity is constrained and its own guidelines on leverage limit fresh debt issuance to a few billion dollars. The traditional Chinese option for CNOOC's state parent to foot the bill falls foul of good corporate governance.

More logical is a carve-up of the assets before the deal reaches either balance sheet. Unocal's main attraction to CNOOC is the clean Indonesian gas assets. Wood Mackenzie values Indonesia at roughly 15 per cent of total upstream assets. The Azerbaijan operations, worth around 20 per cent, are compelling. Chinese entities lost last year's battle for the BG stake in the Kashagan oil project but could be farmed out to another of China's oil majors. That leaves the North American assets, worth about a third of the total, plus some smaller bits. These could be sold to private equity or even another strategic buyer. For east and west, home is sometimes best.

3.

CNOOC POISED TO MAKE UNOCAL OFFER
By Francesco Guerrera

Financial Times (UK)
June 20, 2005

http://news.ft.com/cms/s/43b25ac6-e1c2-11d9-9460-00000e2511c8.html (subscribers only)

HONG KONG -- CNOOCChina National Offshore Oil Corporation is this week poised to trump Chevron's $16.7bn bid for fellow U.S. oil group Unocal.

People close to the situation said CNOOC's four executive directors would ask their four non-executive colleagues to back the deal at a board meeting likely to take place in Beijing tomorrow or Thursday.

CNOOC's independent directors opposed a previous Unocal bid in April. But they are thought likely to support the latest plan after receiving a report from a team of advisers led by Rothschild, the U.K. investment bank.

The report, which reviews the case for the bid presented by the management, is likely to be either neutral or positive on the deal.

The decision to call the meeting for this week reflects the desire of CNOOC's management, led by chairman and chief executive Fu Chengyu, to counterbid before Chevron posts its formal cash-and-share offer to Unocal shareholders.

"The meeting is set for the middle of this week. If they decide to go ahead, an announcement could come in the next few days," said one person familiar with CNOOC's strategy.

However, other people close to the situation warned that CNOOC had not yet taken a decision and that, given the non-executive directors' previous opposition, there was no guarantee the board would back the management.

A bid by state-controlled CNOOC, China's third largest oil group, would underline the country's determination to secure natural resources to maintain its rapid economic growth, but could trigger a political backlash in the U.S.

Two Republican members of Congress have already written to President George W. Bush calling on him to take a tough line on any takeover attempt by CNOOC. They said the bid should be reviewed by the Committee on Foreign Investments because of its implications for national security.

One Washington expert said the Unocal deal could become a "CFIUS case from hell."

Chevron said: "We are unwavering in our intent to see this transaction through to a successful and quick conclusion . . . The offer accepted by the Unocal board is attractive. It has a high degree of certainty as to completion."

CNOOC was unavailable for comment, while its advisers Goldman Sachs and JP Morgan declined to comment. Rothschild also declined to comment.

--Additional reporting by Sheila McNulty in Houston and Stephanie Kirchgaessner in Washington.

4.

Companies

Asia-Pacific

CHINESE COMPANIES LOOK TO EXTEND THEIR REACH OVERSEAS
By Geoff Dyer

Financial Times (UK)
June 22, 2005

http://news.ft.com/cms/s/9a75ee78-e32e-11d9-b6f0-00000e2511c8.html (subscribers only)

RCA televisions, IBM computers and now, perhaps, the Hoover vacuum cleaner -- the Chinese thirst for well-known brands remains unquenched as a consortium led by Haier makes its informal $1.28bn approach for Maytag, the U.S. home appliances group.

Haier is aiming to join the growing band of Chinese companies, such as TCL and Lenovo, which have tried to use acquisitions to gain presence in international markets and win the sort of brand-name recognition that would otherwise take decades to build up.

Coming at the same time as a possible $18bn bid for Unocal by CNOOC, the Chinese oil and gas producer, the Haier approach to Maytag has demonstrated the growing assertiveness of Chinese companies, encouraged by a government that wants to build up its own multinationals.

Haier, whose partners in the bid are private equity groups Bain Capital and Blackstone, is still state-controlled, but over the last decade it has been transformed from a group that made products no one wanted to buy into China's biggest manufacturer of fridges, air-conditioners and washing-machines.

Unlike most of the other Chinese companies that have made cross-border acquisitions, Haier already has a string of factories outside China.

If it wins control of Maytag, the third largest appliances group in the U.S., it will get a range of brands that will move it out of the low end of the market. The deal would also improve Haier's distribution, a gap that long-standing chairman Zhang Ruimin has regularly talked about addressing.

According to Joe Zhang, co-head of China research at UBS, other Chinese companies with international ambitions would be watching Haier's moves closely. "For the whole economy, from China's business sector's point of view, it's going to be a valuable lesson," he said.

Haier refused to comment on Wednesday on whether it would make a formal offer for Maytag or how it intended to restructure the U.S. group.

While the arrival of Chinese corporates has been greeted with some trepidation in developed countries, analysts in China expressed some scepticism on Wednesday about any deal.

Tang Qingqing, an analyst at BOC International, said the group's profit margins had fallen in its home market due to rising competition. Moreover, it would be a huge challenge to turn around Maytag's struggling operations.

An analyst in Shanghai, who declined to be named, said it was difficult to work out how Haier would pay for the deal or whether it could afford it because only part of its operations were listed. "The profitability of the domestic home appliance industry is not very high," she added.

Investment bankers said the structure of the offer, with Haier partnering U.S. private equity funds, underlined Chinese companies' increasingly ambitious overseas takeover plans.

"This is another sign of China taking its place in the global M&A markets. After all, western companies have been doing this for years," says Johan Leven, head of mergers and acquisitions at Goldman Sachs Asia.

The U.S. investment bank advised Lenovo on its sale of US$350m of shares and warrants to Texas Pacific Group and two other private equity groups. That deal, clinched in April, helped Lenovo to fund its US$1.75bn purchase of IBM's PC business.

Industry experts say private equity investors can help Chinese companies, which often lack the managerial expertise and track record to complete large takeovers. It can also bolster shareholder confidence in the deal, as private equity groups have a mandate to achieve high returns.

However, some bankers warn that large buy-out funds can exert a high price for the financial and operational help they provide, with the cost of capital associated with such investments higher than borrowing from capital markets or banks, especially for Chinese state companies that enjoy preferential rates from domestic lenders.

And private equity investors' preference for cashing in their stakes after three or four years could hit Chinese companies' share prices.

"For the first few years, the interest of private equity investors and Chinese companies are aligned but come year four or five, their presence creates a dangerous stock overhang on the share price," says an Hong Kong-based investment banker.

Similarly, the buy-out funds' attempts to maximize their returns before they sell could disrupt Chinese companies' long-term strategy.

For U.S. funds, co-investing with a Chinese company is less attractive than buying directly in the country.

But private equity groups counter that, given the regulatory and financial hurdles they face in China, minority stakes are an efficient way of gaining exposure to the country's fast-growing economy and low-cost workforce.