Wednesday, July 06, 2005

Be wary of Greeks (or Communists) bearing gifts

Here is the text of my response sent to the editors of the Wall Street Journal in response to this article by Fu Chengyu, chairman and CEO of CNOOC Ltd. , the PRC controlled (70.6% ownership) oil company seeking to buy Unocal.

Mr. Fu,

Your article does not even attempt to address the one and only reason Americans are worried about your company's bid to buy Unocal - 70.6% of your stock, a controlling interest, is owned by the Peoples Republic of China, an evil Communist dictatorship. Even granting you the benefit of the doubt that everything you say about your future intentions is true, should circumstances change, you are replaceable and/or answerable to a government that most certainly does not have the best interests of your company's other shareholders in mind, and, most importantly, has long-term political ambitions that will certanily trump your company's purely economic concerns.

The fact that your management has fiduciary duties to shareholders means little without an effective means to enforce those duties, and given that the PRC's courts are not independent, but under the arbitrary control of the PRC dictatorship, there is no guarantee that those fiduciary duties will be recognized if breached.

The private investors who own shares in your company may accept the risk that their equity interest is entirely dependent upon the goodwill of the PRC dictatorship revokable at will and with no recourse. But when the U.S. government has legitimate national security concerns about the availability of a strategic resource such as oil controlled by a U.S. company falling under the control of a not-so-friendly foreign regime, it is entirely appropriate for our government to prevent such a transfer. Perhaps you have good answers to the U.S. government's concerns and my concerns expressed herein. I suspect you don't, otherwise you would have addressed them forthright in your article.


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