Poll Shows Majority In US Oppose Cnooc Bid

THE ASIAN WALL STREET JOURNAL (7/14)

As the board of China's Cnooc Ltd. approved the company's strategy to acquire U.S. oil company Unocal Corp., a poll shows the American public overwhelminglyopposes the purchase -- fueling prospects that U.S. lawmakers now sufferingdismal poll ratings will seize on the issue as the takeover battle continues.
In a new Wall Street Journal/NBC News poll, the U.S. public opposes the dealby 73% to 16%; 11% say they aren't sure. The survey of 1,009 adults, conductedJuly 8-11, has a margin for error of 3.1 percentage points.
That level of opposition is notable because the survey doesn't show thepublic strongly hostile to China across the board, notwithstanding recentcontroversies over its military posture in Asia and trade imbalance with theU.S. Some 44% say the U.S. government should maintain good trade relations withChina, nearly matching the 47% who say the government should demand changes inChinese military policies; 53% say the U.S. should demand human-rightsimprovements from China.
Though 49% of Americans say they regard China as "an adversary," that is downfrom about 70% in surveys conducted early in President George W. Bush'sadministration and late in President Bill Clinton's. Some 26% call China "anally," up from the midteens in those earlier surveys.
Taken together, those findings suggest that, at a time of anxiety over highgasoline prices and military conflict in the oil-rich Middle East, Americanssee the proposed Unocal deal as crossing a line that other economic exchangesdon't.
"The hard and fast feelings toward China are clearly changing," saysDemocratic pollster Peter Hart, who conducts the Journal/NBC survey withRepublican counterpart Bill McInturff. "But when it comes to Unocal, it istotal thumbs-down." Mr. Hart attributes that result to the perceivedimplications for U.S. energy supplies and national security.
The results come as Cnooc, in which government-owned China National OffshoreOil Corp. holds a 70% stake, prepared a revised version of its $18.5 billionbid for California-based Unocal yesterday that could make it more acceptable,say people familiar with the matter. A person familiar with Cnooc's thinkingsaid the company is prepared to raise its bid in the days ahead, though theperson didn't provide details. Unocal has a scheduled board meeting today.
After holding nearly nonstop negotiations since June 22, Cnooc and Unocal are"within a stone's throw" of agreeing to a draft merger agreement, according toone person familiar with Cnooc, which is competing with Chevron Corp., of theU.S., to buy Unocal
The Bush administration has taken a noncommittal stance until a finalUnocal-Cnooc agreement triggers a government review of the potential deal'simplication for U.S. national interests. But in Congress, lawmakers have begunvoicing concerns.
Yesterday on Capitol Hill, Richard D'Amato, chairman of the U.S.-ChinaEconomic and Security Review Commission, warned lawmakers the proposedtransaction poses a threat to U.S. national security, in part because of thesophisticated technologies used by Unocal but also because of oil reserves thatwould come under Cnooc control.
"We believe the key national-security problem involves the taking of animportant U.S. energy company by a foreign government, the Chinese practice ofhoarding oil that would divert those supplies from [the] global market, theenhanced political influence of that government in a region important to theU.S. and the precedent it would establish for further Chinese acquisitions ofenergy assets," Mr. D'Amato said in testimony before the House Armed ServicesCommittee.
The chairman of the committee, California Republican Duncan Hunter, has beena leading critic of the proposed deal and the broader security threat posed byChina. "China is building a military that at some point will be formidable," hesaid.
Such warnings may be accelerated by the Journal/NBC poll results. HouseEnergy and Commerce Chairman Joe Barton of Texas is considering insertinglanguage criticizing the deal into energy legislation pending in a House-Senateconference committee.
Cnooc is seeking to overcome resistance in multiple ways. Cnooc and rivalbidder Chevron, with its pending $16.8 billion deal, are racing to advancetheir causes before the Unocal meeting. A Unocal shareholder vote on the matteris scheduled for less than a month from now, on Aug. 10.
Cnooc's revised offer will contain numerous provisions designed to assuageconcerns by Unocal directors that a deal could be derailed by regulators inWashington, where Cnooc's bid has become a proxy for dissatisfaction inCongress with China on matters ranging from its trade surplus with America toweak protection for U.S. intellectual property.
Crucial to that agreement, say people familiar with the matter, is aprovision for a kind of escrow account in excess of $2.5 billion for Unocal.Also, an additional $500 million would be paid as a "breakup fee" to Unocal inthe event that Cnooc breaks its contract, according to one person familiar withthe negotiations.
A spokeswoman for Unocal declined to comment. Unocal and its advisers stillremain concerned about Cnooc's ability to close a deal, particularly as thetransaction faces hostility from Congress. To help soothe investor worriesabout Washington interference, Cnooc on July 1 filed notice with the Committeeon Foreign Investment in the United States, or Cfius. Cnooc's hope was thatCfius would immediately begin its investigation, cutting the time until a finaltransaction could be closed.
But the panel has declined to begin a review, according to people familiarwith the matter, and won't open an investigation until the two sides have asolid deal in hand.
Cnooc is trying to head off Cfius questions, and in its proposed contractwith Unocal, it outlines a series of proposed divestitures, according to one ofthe people familiar with the negotiations. These potential divestitures, mainlyof Unocal assets in the U.S., should satisfy security concerns of "anyreasonable person," this person said.
The stock market continues to suggest that a bidding war is in the offing.Unocal shares were at $66.37 in afternoon New York Stock Exchange compositetrading yesterday, up 46 cents on the day and more than 9% higher thanChevron's offer of $60.68 a share. And shareholders continue to say that thebest way for Cnooc to win Unocal's allegiances is by sweetening its $67-a-sharebid.
In advertisements slated to run in Washington-based news outlets today, Cnoocalso is expected to take its case directly to lawmakers. In one ad, a baseballumpire implores Capitol Hill to "[M]ake this a fair call" and not to make anyjudgments about the deal before all the facts are known.