The US Congress' latest attack on private property has come at the expense of Unocal shareholders who have lost at least US$1 billion because of CNOOC's decision to drop its bid, due not to market forces but to political pressure from Capitol Hill. Chevron is the clear winner, with its bid of about US$17.6 billion, but the damage done to US-China relations and to the free flow of investment funds in global capital markets could be substantial.
By politicising the takeover market and weakening the private property rights of Unocal's shareholders, Congress is violating the very free-market principles it is supposed to uphold. There was absolutely no national security threat from the Chinese takeover bid. Yet that bogus risk was used to justify treating Unocal as a public asset rather than a private firm with the right to conduct its own business.
In a letter to Unocal's board, Peter Schoenfeld of P. Schoenfeld Asset Management, which controls a block of Unocal shares, wrote: 'It is your duty to maximise value for stockholders.' Indeed it is. But Congress's hysterical China-bashing and ignorance of the energy markets have compromised that duty.
Even without a legal prohibition on a deal, Congress can intimidate a foreign company like China National Offshore Oil Corp by imposing considerable costs on the takeover process and using the secretive Committee on Foreign Investment (CFIUS) to breed uncertainty. That is not to say we should let foreign companies have totally free access to US assets. In some cases, especially in the area of sensitive technology with military applications, there may be legitimate risks. Going through a government vetting process would then be warranted.
That was not the case for CNOOC. By bringing Congress into what should have been a private transaction, Washington abused its power and may jeopardise US business interests in China.
CFIUS, which is chaired by the secretary of the treasury, investigates foreign investments and recommends a presidential block on those that pose legitimate national security concerns. The review process, however, is far from transparent and leaves considerable discretion in determining what constitutes a credible threat. With the bulk of Unocal's oil and natural gas operations in Asia and with its US production accounting for less than 1 per cent of US consumption, it is difficult to see how the committee could have found 'credible evidence' that the proposed takeover endangers US security.