China oil firm looks to allay US concerns in merger bid

As the China National Offshore Oil Corp. tries to purchase US-based Unocal, it must first build trust in this country to ensure a successful deal.

As the China National Offshore Oil Corp. tries to purchase US-based Unocal, it must first build trust in this country to ensure a successful deal.

When the China National Offshore Oil Corp. (CNOOC) announced last month that it would attempt to acquire US-based oil company Unocal, commentary and criticism erupted from all quarters. Would this be a threat to national security? Is it prudent to sell a US oil company to a Chinese state-owned company at a time of increasing oil prices? Can we trust a Communist government not to leverage such an asset against us?

Pro-CNOOC voices were just as loud. They pointed out that CNOOC's unsolicited bid was $1.5 billion higher than another bid from Chevron, which had thought that it had the Unocal deal safely wrapped up. How could Unocal's board in good conscience deny its shareholders that extra money? And if politicians stepped in to put the brakes on the deal, what effect would that have on our increasing reliance on China as an economic partner? What about the Republican Party's image as a bulwark of free trade and laissez-faire economic policy - how to reconcile that with a potentially blatant protectionist move to scuttle CNOOC's bid?

Resolving all of these questions fell, as usual, to a host of PR specialists. CNOOC came to the table highly prepared. The Chinese company retained the services of The Brunswick Group in both the US and Asia to help sell its case to the world; it also hired Public Strategies to help with the public affairs aspect of the deal in Washington, DC.

Brunswick partner Michael Buckley says that the complexity of the proposal called for such a far-flung communications team. "There's an awful lot of moving parts [involved in the bid]," he says.

Mark Palmer, the former Enron spokesman who is leading Public Strategies' work for CNOOC, would not elaborate on his agency's work. "We're not going to talk about tactics or anything until we're successful with the bid," he says.

Unocal, the company ready to sell that has unexpectedly found itself the subject of an international bidding war, has not found it necessary to use much external support and is handling the task in-house. "We have consultants that we use," says Unocal PR manager Barry Lane, "but we have not hired anybody specifically for this."

Chevron did not return calls seeking comment on its communications strategy. But it has used the obvious tactic of raising questions about the likelihood of regulatory approval for a CNOOC acquisition, while trumpeting the fact that the Securities & Exchange Commission has already cleared its bid, which will be put to Unocal shareholders next month.

"A transaction with Chevron is highly likely to close, while the CNOOC proposal must undergo an extensive regulatory process in the US and elsewhere," Chevron said in a statement. The company also touted its "compelling value, regulatory certainty, and accelerated timing" as factors that Unocal shareholders should consider.

Political and financial factors

The challenges to CNOOC's bid loom on two major fronts: Wall Street and Washington, DC. The finance world's reaction to the Chinese bid was decidedly less shrill than that of politicians, perhaps because the reality of China's economic importance has sunk in much more among savvy investors than it has among many congressmen's constituents. Christian Murck, CEO of Asia for APCO Worldwide, says that the dual political/financial challenges are common to most Chinese state-controlled enterprises seeking to become more active in the US market.

"There are political and strategic questions arising from the fact that the Chinese enterprise is owned by a government and Communist Party structure quite different from anything in the US," Murck says via e-mail from Beijing. "The best way for a Chinese enterprise to address the issues is straightforwardly and transparently. Few observers based in the US understand the degree to which China is integrating itself into international markets and allowing market prices to operate within China. Fewer still understand China's requirement that its major enterprises become internationally competitive."

CNOOC has consciously presented its bid as a strictly commercial transaction that has few, if any, strategic national security implications. Not only have its communication advisers played up the fact that the company conducts meetings in English, and that chairman and CEO Fu Chengyu attended the University of Southern California, but they have pointed out that Unocal's Asian assets are more important to CNOOC than its American oil production. "In many ways, [Unocal] already [is] a predominantly Asian company, despite the fact that the headquarters are in California," Buckley says.

But the fight in DC requires a public affairs strategy separate from the IR and financial communications tactics used to sell investors on the Chinese bid. The force applied (both behind the scenes by Chevron and publicly by elected officials) to turn CNOOC's proposed acquisition into a political football will have an equal and opposite drag on the company's attempt to maintain focus on the commercial nature of the deal.

For CNOOC to succeed, it will have to gain approval from the Bush administration's Committee on Foreign Investment in the US (CFIUS), a process likely to be affected as much by political currents as by economic arguments. "It's a monumental task," says Stan Collender, MD of Financial Dynamics' DC office. "If you ask the average American what they think of when they think of China, they will tell you Tiananmen Square, Mao Tse-tung, and probably, currently, oil prices."

Collender says that CNOOC must emphasize not only its own strengths, but also the strengths of the entire Chinese political and economic system, including its gradual movement toward capitalism. "If they're seen as a capitalist society, they're going to be looking for customers rather than political policy, rather than ideology," he points out. "Showing that they're a capitalist economy becomes critical under those circumstances - that their incentives are the same as anybody here."

Fostering Chinese goodwill

Whether this particular bid goes China's way or not, the future of large-scale deals like this one will depend on long-term, concerted communication programs by the Chinese government and the companies it owns to build goodwill among the US public and politicians.

"A familiar, known quantity is always less threatening," says Christian Murck. "If basic mutual understanding is in place, the specific issues surrounding a transaction can be addressed with fewer distractions."

And while CNOOC turned to communication advisers beyond its own borders, China's own PR expertise might be a deciding factor in its ability to foster goodwill abroad.

"If they have a substantial Chinese PR operation in the US, it's not immediately apparent to me," Collender says, "and I live inside the Beltway."

With the importance of the US-China relationship in mind, the PRSA sent a delegation to the country earlier this year to gauge the state of the industry and help build relationships with fellow practitioners in the world's largest nation. Del Galloway, immediate past PRSA president and a partner at Florida-based Husk Jennings Galloway & Partners, says the trip showed him that "what's happening in the PR industry there is nothing short of revolutionary" - though perhaps that's not the best word for China to play down its communist orientation.

Galloway says that an intense concern about China's reputation in the US was not immediately evident to him, which could prove to be a thorn in the nation's side as more of its state enterprises seek to grow in America. But one of CNOOC's main claims about itself and other companies like it did ring true to him.

"It's a fascinating experiment that's going on there," he says. "No doubt about it, it is a communist government. And yet, from a business perspective, in many ways it looks, smells, and operates like business that we'd experience here in the US."

Have you registered with us yet?

Register now to enjoy more articles and free email bulletins

Already registered?
Sign in