Summary
Why did China National Offshore Oil Company Limited (CNOOC) bid for Unocal in 2005? On April 30, 2006, CNOOC argued that the move was necessary for CNOOC to realize its fast development and to build a global energy company. Why did the bid fail? CNOOC attributed the failure of its bid to underestimating the resistance from the international political environment.
Analysis
CNOOC paid the price but learned a valuable lesson after losing its bidding-war with Chevron. Although CNOOC offered an all-cash bid that was US$1.9 billion higher than Chevron's offer, they miscalculated the American population's negative reaction towards a foreign takeover of its energy companies. Additionally, CNOOC's planning, execution, communication, and incentives for target executives all pointed to its weakness and inexperience in this takeover battle. A cross-border takeover in the petroleum or energy sector tends to be much more complicated than that in an industrial sector. However, by putting themselves under the global spotlight during the bidding process and gaining the attention of global investors and the financial media, CNOOC's failed takeover of Unocal may result in some positive effects for the future. Specifically, the company's international financing and global expansion should reap the greatest benefit from their increased exposure. In addition to other acquisitions in Europe by Chinese firms, Lenovo's acquisition of IBM's PC business, Haier's bidding for Maytag, and CNOOC's bidding for Unocal indicate that Chinese firms are pursuing, learning, and growing in cross-border acquisition.
