China National Offshore Oil Corporation (CNOOC) yesterday formally launched its $19.6 billion (€19.3 billion) bid for Unocal with a strong appeal to investors and US politicians that the proposed acquisition would not endanger its own balance sheet or US national security.
Amid some early signs of unease in Washington, CNOOC's top executives sought to make the case for what they called a "transformational" deal.
The state-controlled company's unsolicited bid - launched after a late-night board meeting on Wednesday - aims to trump Chevron's agreed $18 billion takeover of Unocal with a $67-per-share offer that values the US energy group at nearly $19.6 billion.
Fu Chengyu, chairman and chief executive, insisted CNOOC's proposal was a "good offer for Unocal ... it is a good offer for America".
He pledged not to export any oil and gas produced in the US and to retain all Unocal employees.
However, the CNOOC bid is expected to be reviewed by the Committee on Foreign Investments in the US, or CFIUS, an interagency panel led by the treasury department that reviews foreign transactions of US companies and assets on national security grounds.
CFIUS experts said the possible Chinese ownership of Unocal would most likely be considered a "national security" matter because oil was viewed as "critical infrastructure" to the US.
Indications of political resistance were exemplified by Senator Charles Schumer, the New York Democrat, who said in a hearing: "Would China allow an American company to take over a Chinese company? We know countless instances where it hasn't been allowed."
Alan Greenspan, Federal Reserve chairman, and John Snow, treasury secretary, warned congress against erecting barriers to trade with China.
CNOOC's bid is the third largest cash offer ever, behind Cingular's $41 billion purchase of AT&T Wireless and Unilever's $24 billion takeover of Best Foods.
Credit rating agencies said they might downgrade CNOOC as analysts warned the bid - pitched at a premium of about 9 per cent to Chevron's cash-and-shares offer - could saddle CNOOC with too much debt.
Some US investors were thought likely to press Chevron to raise its offer.
They contrasted the uncertainties around the timing of any deal with CNOOC with Chevron's ability to secure shareholder approval as early as August.
CNOOC will fund the bid with $7 billion in loans from its state-owned parent, a $6 billion loan from state lender Industrial and Commercial Bank of China, a $3 billion bridge loan from its advisers Goldman Sachs and JP Morgan and $3 billion from its cash reserves.
The Chinese group will also assume $1.1 billion of Unocal debt.
CNOOC's Hong Kong-listed shares closed slightly higher at HK$4.225 (€0.45) yesterday.
Unocal's shares rose 70 cents to $65.56 in mid-day trading in New York.
