Gonna be a fun takeover battle

Peter S. Goodman reports in the Washington Post that the Chinese Foreign Ministry hasn’t taken too kindly to Congressional doubts about the proposed CNOCC takeover of Unocal:

The Chinese government on Monday sharply criticized the United States for threatening to erect barriers aimed at preventing the attempted takeover of the American oil company Unocal Corp. by one of China’s three largest energy firms, CNOOC Ltd. Four days after the House of Representatives overwhelmingly approved a resolution urging the Bush administration to block the proposed transaction as a threat to national security, China’s Foreign Ministry excoriated Congress for injecting politics into what it characterized as a standard business matter. “We demand that the U.S. Congress correct its mistaken ways of politicizing economic and trade issues and stop interfering in the normal commercial exchanges between enterprises of the two countries,” the Foreign Ministry said in a written statement. “CNOOC’s bid to take over the U.S. Unocal company is a normal commercial activity between enterprises and should not fall victim to political interference. The development of economic and trade cooperation between China and the United States conforms to the interests of both sides.” (emphasis added)

Look, I’m probably more sympathetic to the proposed takeover than most Americans, but that highlighted passage even made me laugh out loud. As the Economist pointed out two weekso ago, 70.6% of CNOOC’s stock is owned by a “state-owned, unlisted parent company.” Furthermore, “The Chinese offer is in cash?the shares even of a well-run Chinese firm are not yet acceptable as takeover currency.” A separate story points out:

The Chinese government?s coddling of its state-owned firms is another force behind the current wave of overseas expansion. While officials want to see markets develop at home, up to a point, they fear the fallout from the collapse of hundreds of large, communist-era basket-cases. So the government props these enterprises up with ultra-cheap loans through the banking system and other favours, which have the effect of creating overcapacity and nurturing unfair competition. This, in turn, pushes the more successful state firms, and private companies like Haier, to seek opportunities in markets abroad. China?s favoured companies, with their access to cut-price funding, will usually be at an advantage compared with overseas rivals when bidding for assets, and may be prepared to pay over the odds. Critics suggest that CNOOC is paying too high a price for Unocal and that the money is coming from China?s government, which has let its desire to create global businesses cloud commercial logic. CNOOC has said it will borrow $16 billion from its government-owned parent and banks to finance the offer.

There’s nothing “normal” about this particular commercial exchange — from the Chinese side of things, there is government intervention all over the friggin’ place. The Chinese government’s suggestion otherwise just makes them look ham-handed. The irony, of course, is that regardless of the Chinese government’s idiocy, the Congressional concerns about the takeover are pretty much bogus. Goodman’s story quotes Rep. William J. Jefferson, a Louisiana Democrat, saying last week that, “We cannot, in my opinion, afford to have a major U.S. energy supplier controlled by the Communist Chinese.” However, as Paul Blustein noted in last Friday’s Post, the concerns about China’s market power from a Unocal purchase affecting U.S. energy prices and supplies are absurd:

it is hard to see how the Chinese purchase of Unocal could affect petroleum availability or otherwise endanger U.S. security, many global energy experts say. China may be a potential military adversary, and congressional frustration over Chinese trade policy drives much of the animus toward the deal. Still, some fears about China’s grab for oil reserves are at odds with experts’ view of how global oil markets work. Those markets are vast and fluid. Known oil reserves exceed 1 trillion barrels, daily production averages more than 80 million barrels, and traders readily swap tankers full of crude to balance excess demand in some parts of the globe with excess supply elsewhere. Accordingly, said Philip K. Verleger Jr., an energy specialist at the Institute for International Economics, “there is absolutely no reason why we should care” who owns Unocal’s oil and gas reserves, which total about 1.75 billion barrels. Even though Chinese control over Unocal’s reserves, which are mostly in Asia, might ensure that the company’s petroleum was shipped to China during an energy shortage, “the cost of oil will be set between world supply and demand, and not by arrangements like this,” agreed Robert J. Priddle, the former executive director of the Paris-based International Energy Agency. “This won’t change the price of oil, or the availability of oil.” ….During the oil crises of the 1970s and 1980s, Priddle and other experts recalled, several European countries established national oil companies with the aim of assuring supplies, and nations such as France cozied up to Iran, Iraq and other oil suppliers. But when oil shipments were cut off, “they had the same problems we did” with higher energy prices, said Amy Myers Jaffe, associate director of the energy program at Rice University’s James A. Baker III Institute for Public Policy. “Owning reserves doesn’t change the price,” Jaffe said. “If the price of oil goes to $125 a barrel, and China owns a field in Sudan, the price for them is still $125.”