Ex-Unocal CEO says CNOOC almost won

Ex-Unocal CEO says CNOOC almost won

Gary Gentile, Associated Press, Los Angeles

The former CEO of Unocal Corp. said the U.S. energy company
would have agreed to be acquired by the Chinese state-owned oil
and gas company CNOOC Ltd., despite fierce political opposition,
if the Chinese side had raised its bid in August.

"Our board wouldn't have backed away, former Unocal chief
executive Charles R. Williamson said on Wednesday at a meeting
sponsored by the University of Southern California's Marshall
School of Business.

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 the equivalent of $66 per share.

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.

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.

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

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

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

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

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," Williamson said.

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.

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

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

One of the biggest issues that has to be resolved for a
Chinese takeover of a U.S. company is the unlevel playing field
that occurs when a state-owned company 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 said.