China's CNOOC Ltd on Tuesday abandoned its $18.5 billion offer to acquire Unocal Corp in the face of strident political opposition, clearing the way for the US oil and gas producer to conclude a deal with larger US rival Chevron Corp.
The move ends a take-over battle that became a flashpoint for Sino-American trade relations and global energy security issues as oil prices raced to record highs.
CNOOC's all-cash offer in late June easily topped Chevron's sweetened $17.4 billion bid for Unocal, whose shares were slightly lower on Tuesday, roughly in line with the Chevron bid.
But in the end, the vociferous backlash in Washington from lawmakers wary of a Chinese government-controlled company taking over American oil assets all but sealed the deal for Chevron.
"The political reaction has scared off the board of Unocal, the shareholders and CNOOC itself," said Edmund Harriss, fund manager at Guinness Atkinson, which holds CNOOC shares. "I don't think anybody really anticipated quite what a maelstrom they were entering into."
CNOOC said in a statement, "CNOOC has given active consideration to further improving the terms of its offer, and would have done so but for the political environment in the US"
It called the political response to its offer "regrettable and unjustified."
Some members of the US Congress sought to block the deal almost from the start. Last week a congressional conference committee added a provision to a broad energy bill that would have delayed the necessary government review of CNOOC's offer by months.
"No surprise - it looks like Chevron has pulled off a pretty good political campaign and got a lot of support," said Jason Putman, an analyst at Victory Capital Management in Cleveland, Ohio, which owns Unocal shares.
In public filings related to the Chevron offer, Unocal made clear that it had been willing to accept the CNOOC bid under certain conditions - conditions CNOOC ultimately chose not to meet.
CNOOC Chairman Fu Chengyu, the driving force behind the bid, in the end listened to his political advisers, who had warned of the high political hurdles the transaction faced.
CNOOC shares rose to a new record high in Hong Kong trading on Tuesday before the company made the expected decision to withdraw its bid, gaining 2.8 percent to HK$5.50. Unocal shares were down 21 cents to $64.16, while Chevron shares rose more than 1 percent to $59.12 a share.
"This is good for CNOOC. It clears away the uncertainty risks," said John Koh, fund manager at Daiwa Asset Management, which holds CNOOC shares.
Unocal shareholders are to vote on the Chevron offer on August 10. If they approve the deal, it is expected to close as soon as that afternoon.
Unocal had no direct comment on CNOOC's withdrawal, except to say that it continues to believe a combination with Chevron provides the best value for shareholders.
Chevron did not address the CNOOC move either, saying only that it looked forward to completing the deal on August 10.
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