Executives from CNOOC and takeover target Unocal meet in New York this week and some fund managers say the $18.5 billion bid has a 50-50 chance of success, despite heavy political resistance in Washington.
CNOOC Chief Financial Officer Yang Hua leads a group of officials from the state-run Chinese oil firm, along with advising lawyers and bankers, to the United States early this week to discuss the unsolicited bid it put to Unocal last week, a person familiar with the matter told Reuters on Monday.
CNOOC is trying to persuade Unocal's board to recommend that shareholders accept its all-cash bid, representing a premium of around 9 percent to oil major Chevron's stock-and-cash offer.
"CNOOC gets a 50-50 chance of winning. Under the current climate, it's not clear whether money or political concerns will get the upper hand," said John Koh, fund manager at Daiwa Asset Management (Hong Kong) Ltd., which holds CNOOC shares.
Unocal would probably stick with Chevron's offer unless CNOOC raised its bid or prove its acquisition will pass the U.S. regulatory hurdles, sources said.
"The only way for CNOOC to get Unocal's attention is that number one, they increase the price, and number two, they clear all the political hurdles in the U.S.," said a source close to the process.
"They need someone in the U.S. government to come out and say: we'll support this deal. Without that, you are not going to see any shareholders' response to the bid," he said.
To boost its chances, CNOOC has hired high-powered public relations manager Mark Palmer, the former chief spokesman of Enron Corp.
CNOOC is advised by U.S. investment banks JP Morgan and Goldman Sachs as advisors. Spokespersons for the two investment banks declined to comment.
CNOOC's offer, which will be China's largest overseas acquisition if it materializes, has drawn fire from U.S. politicians, who argue it would harm U.S. national security.
More than 40 U.S. lawmakers have urged the Bush administration to closely scrutinize CNOOC's offer, amid discontent over China's $160 billion trade surplus with the United States and concerns about China's military might.
But some U.S. corporate executives have said such concerns may be overblown given that most of Unocal's reserves and output are in Asia and CNOOC has promised to sell U.S. output locally.
Unocal's shareholders, enticed by the higher CNOOC bid but put off by the political uncertainty, may yet pressure Chevron to raise its offer.
"Clearly the Chevron bid currently would be voted down if put to a vote," said a U.S.-based fund manager holding Unocal shares, who asked not to be identified.
"If Chevron wants to win, they need to raise their bid," he said, adding that Chevron may need to boost its offer to at least $65 per share.
Chevron's offer -- 75 percent in shares and the rest in cash -- is worth about $61 a share, versus CNOOC's $67 per share. The market has priced in the regulatory risks involving CNOOC's bid. Unocal shares last traded at $65.68 each.
Chevron has said it would stand by its original offer, which has passed several regulatory hurdles and is about to receive the final go-ahead soon.
"Chevron is not going to raise the bid now. The CNOOC bid is not a real bid yet because there is no guarantee you can close on it," said the source.
A key element in CNOOC's bid is the retention of Unocal's management expertise, which appeals to the U.S. company's board.
CNOOC has also pledged to retain most of Unocal's employees.
"The next event should be Unocal will go to Chevron and say they expect to conclude that the CNOOC bid is superior, and it will be up to Chevron to decide," said the U.S. fund manager.
Gauging how long it might take for regulatory approval of a CNOOC bid is virtually impossible, sources said, adding that Beijing might threaten to bar some U.S. firms from deals in China if the CNOOC bid is blocked.
"CNOOC has to use G-to-G (government-to-government) contact to lobby the U.S. government to get a green light," the source said.
"I don't think any Unocal shareholder will raise their hands until the green light is given."
