Politics influenced the final outcome of bargaining for Unocal. China lost, but we can expect it to retaliate.

On April 4, directors of Unocal, the twelfth largest U.S. oil company (rated by the Forbes survey of 2000 World’s Biggest Companies) accepted a $16.5 billion offer to be bought by Chevron, the second largest U.S. oil company. The offer was one quarter in cash and three quarters in Chevron stock. However, on June 22, the Chinese National Offshore Oil Corporation (CNOOC), the third largest Chinese oil company, and a company smaller than Unocal, made a counteroffer of $18.5 billion in cash, financed in part by low interest rate loans from its state-owned parent company.

In mid-July 2005, Chevron increased its bid to $17.3 billion, turning up the heat on CNOOC to respond with a higher bid of its own. Although higher, CNOOC’s offer faced “unprecedented political opposition” in Washington , leading it to withdraw its bid on August 2, thus leaving it to Chevron to complete the takeover. This comes as no surprise, for when it comes to oil bargaining, political factors rule over economics. Read More »