$18.5 billion bid tops Chevron offer, marks first big Chinese battle for U.S. corporation

SHANGHAI, China - One of China's largest state-controlled oil companies made a $18.5 billion unsolicited bid for Unocal on Thursday in the first big takeover battle by a Chinese company for an American corporation.

The bold bid by China National Offshore Oil Corp. (CNOOC) may be a watershed in Chinese corporate behavior, and it demonstrates the increasing influence of Wall Street's bare-knuckled hostile takeover tactics in Asia.

The offer is the latest symbol of China's growing economic clout and of the soaring ambitions of its corporate giants, particularly when it comes to the energy resources it desperately needs to continue feeding the nation's huge growth.

CNOOC's bid, which comes two months after El Segundo-based Unocal agreed to be sold to San Ramon-based Chevron for $16.4 billion, is expected to trigger a potentially costly bidding war over Unocal.

The offer is likely to provoke a fierce debate in Washington about the nation's trade policies with China and the role of the two governments in the growing trend of deal making between the nation's companies.

Earlier this week, a consortium of investors led by the Haier Group, one of China's biggest companies, made a bid to acquire American appliance icon Maytag Corp. for about $1.3 billion, surpassing an earlier bid made by a group of American investors.

Last month, Lenovo, China's largest computer maker, completed its $1.75 billion deal to acquire IBM's legendary personal computer business, creating the world's third-largest computer maker after Dell and Hewlett-Packard.

After years of attracting billions of dollars in foreign investment, and turning itself into the world's largest factory floor, China appears to be nurturing the growth of its own corporate giants, trying to create its own beacons of capitalism.

China wants to be a player on the world stage and it is eager to have its own energy resources, its own multinational corporations and its own dazzling corporate icons.

"If there's an asset up for sale anywhere in the world, people are looking to China, particularly if there's a manufacturing element involved," said Colin Banfield, who runs the mergers and acquisitions practice at Credit Suisse First Boston in Asia. "And if these two deals go through this year, no one is going to doubt the credibility of the Chinese corporates when it comes to M&A."

In a response to the bid, Unocal said in a statement that its board would evaluate the offer, but the recommendation of its deal with Chevron "remains in effect."

The CNOOC bid faces an uphill battle, with hurdles that rise above the normal challenges facing a hostile corporate bidder. Chevron noted a Unocal deal with CNOOC would require extensive new regulatory approvals in the United States and elsewhere.

Already, lawmakers in Washington are questioning whether the Bush administration should intervene to block the bid for Unocal, which was founded in 1890 as Union Oil Co. of California.

CNOOC is interested in Unocal less for its exploration and production in North America than its huge reserves in Asia. Twenty-seven percent of Unocal's proven oil reserves and 73 percent of its proven natural gas reserves are in Asia, according to Merrill Lynch.

To win the bid, CNOOC will have to persuade Unocal's shareholders to vote against its deal with Chevron before the company would be allowed accept a deal with CNOOC. The new deal then would have to be put to another shareholder vote.

Chevron, which could raise its bid to head off CNOOC, is racing to complete its deal with Unocal. CNOOC's all-cash offer values Unocal's shares at $67 each. Chevron's cash and stock deal values Unocal's shares at $61.26 each, based on Chevron's closing price of $58.27 Wednesday.

Shares of Unocal jumped 2.2 percent to $64.85 as investors anticipated CNOOC's higher bid.

Trying to assuage concerns of lawmakers in Washington, CNOOC pledged to continue Unocal's practice of selling all the oil and gas produced in the United States to customers in the United States. The company also said it would retain nearly all of Unocal's employees in the United States.