Monday, July 25, 2005

In Whose Interest?
I've already devoted more space to the CNOOC/Unocal/Chevron tussle than I intended, but I can't fail to point out an excellent article on the subject in yesterday's New York Times. In addition to including my favorite quote of the week, characterizing China as "Walmart with an army", it includes concrete proof of something I said earlier this month, concerning the adverse impact of CNOOC's offer on its outside shareholders, who make up 30% of the company's total equity. A fund manager at William Blair & Company, which recently sold its stake in CNOOC, was cited by the Times saying, "If China is going to sell shares in a company like Cnooc to outside shareholders, it should not be run for the benefit of Chinese economic policy." Yet that is precisely what seems to be occurring, and why what should otherwise be regarded as a normal commercial transaction, along the lines of BP's acquisition of ARCO in 2000, has rightly drawn so much opposition.

Frankly, at this point the only parties clamoring for Unocal's board to accept CNOOC's offer are Unocal shareholders, whose enthusiasm for a higher price may be understandable but is too narrowly-based to outweigh larger concerns of national interest and policy. Now that the underlying forces behind this situation are evident, I hope that our lawmakers will consider measures that go beyond an ad hoc response to a single deal, but rather lay out the terms under which Chinese companies would be allowed to buy US companies in any sector of strategic importance. The first principle of such an approach should be reciprocity: CNOOC should not be allowed to buy Unocal until China's laws would permit ExxonMobil to buy Sinopec, or some other large Chinese energy company. That day is probably still a long way off.

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