The China National Offshore Oil Corp Ltd. announced yesterday that it is abandoning its effort to acquire second-tier U.S. exploration and production company Unocal Corp, paving the way for Unocal shareholders to accept Chevron’s competing bid. Here are the previous posts on the battle over Unocal.
Chevron clearly overwhelmed CNOOC in the political arena of this takeover battle, which ended up discounting the value of CNOOC’s superior all-cash bid because of concerns over whether CNOOC could close it anytime soon. Although there will likely be much hand-wringing over the impact to Sino-American economic relations as a result of CNOOC’s failed bid, the reality is that CNOOC screwed the pooch on this one.

First, it’s not as if CNOOC had not lined up the necessary political and financial resources to do battle with Chevron. CNOOC hired involved White House-connected lobbyists and the usual battalion of Wall Street investment bankers and public relations types. Moreover, CNOOC’s CEO, Fu Chengyu, speaks fluent English and studied petroleum engineering at the University of Southern California. So, these folks knew what they were doing.
However, CNOOC allowed Chevron to get a leg up by failing to meet Unocal’s March 30 deadline for submitting bids. CNOOC’s board resisted Mr. Fu’s attempt to meet that deadline, and did not come around until late June. By that time, CNOOC’s bid had to overcome not only the Chevron deal, but also a half billion breakup fee in favor of Chevron. When Chevron sweetened its bid recently, many institutional investors were so concerned about CNOOC’s ability to handle the federal approval process and close the deal, they began to lean toward taking the bird in the hand rather than the bigger one in the bush. That effectively sealed the fate of the CNOOC bid.