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From The Mailbag

China may outbid Chevron for California based Unocal. If China wins the the bid, will Walmart start selling Chinese gas, too?

China National Offshore Oil Corporation broke six months of silence over whether or not it would attempt to take over the California-based oil company, Unocal. CNOOC signaled last week that it is considering upping Chevron's $16 billion bid in an attempt to gain a foothold in the lucrative United States market.

The unsolicited and unwanted bid by the Chinese government-owned CNOOC for an American oil asset will trigger political backlash which ever way it goes. First is the already strained relationship between the US State, Treasury and Commerce Departments over recent spats with China over trade and foreign exchange issues, plus new demands from the US State Department for claims of restitution that date back to the end of World War II when the communist regime seized the country and "nationalized" several American and British companies without compensating the shareholders of those companies for the assets the People's Republic of China seized.

The first clue that CNOOC was contemplating making a bid for Unocal was a statement the company made to the Hong Kong stock exchange last Tuesday when it said it was "...continuing to examine its options with respect to Unocal [with options]...that include a possible offer...for Unocal," noting that no final decision had yet been made. Clearly, CNOOC was "testing the waters" to gauge the reaction of the Bush Administration and the Securities & Exchange Commission, the State of California and Unocal before floating an offer. The reason we know CNOOC wants Unocal is that Chinese officials are now pressuring non-executive directors in CNOOC to make an offer. Independent directors have resisted making a bid that would saddle CNOOC with billions of dollars of new debt. It was this resistance that is rumored to have stopped a tentative bid in April, just days before Chevron made its $16 billion offer for the company.

Since April, the Chinese government has forced the ouster of at least one reluctant non-executive board member. The remaining non-executive board members have hired the Rothschild Investment Bank, Charles River Associates consultant group and an American law firm, Skadden, Arps, Slate, Meagher & Flom to advise them. Speculators and spectators alike see movement in the Hong Kong market that suggests hedge funds are positioning themselves for a piece of this anticipated action. However, knowledgeable insiders are convinced that as long as Unocal has a viable offer on the table from Chevron it will be hard for CNOOC to broker a deal of their own—even with Rothschild help. If the handshake that seals the deal has taken place with Chevron—even if no signatures have been exchanged—no amount of money offered by CNOOC will break the Chevron purchase of Unocal. One of the reasons CNOOC wants Unocal so bad (other than it obviously wants to penetrate the American markets) is that the California-based company has gas and oil reserves in Thailand, Indonesia and in central Asia.

In the event CNOOC moves fast enough—and with enough money to outbid Chevron (which has Rockefeller money at its disposal)—the consumers in California need to boycott Unocal from the moment the transnational deal is finalized since what is owned by the Chinese government is, in reality, owned by the People's Liberation Army of the People's Republic of China. That means everytime Californians buy a gallon of gasoline at a CNOOC-Unocal station (providing CNOOC ends up with the company) they will be paying for a new clip of ammo for a Chinese AK47 that, some day in the not too distant future, will be firing at American troops_or American citizens. If CNOOC ends up with UNOCAL, consumers who buy their gas at Walmart™—thinking it's the one thing you can still buy at the chain Sam Walton built that doesn't come from China—need to ask themselves again just how many of their hard-earned dollars they want to send to the People's Liberation Army.

Once again, you have my two cents worth on this subject.