The Hidden Benefits of China's Shopping Spree

This is a reprint from a Google News article. I felt it was best to repost it here as it’s a very good perspective, in my opinion, on the different cultures for corporate aquisitions. Foreign investors look for distressed companies to purchase on the cheap, then invest in them. We Americans on the other hand, just look for companies we can flip over and drain until someone gets holding the bag …

Now, as far as the sale of Unocal, this ought to be a wakeup call. China is a rapidly growing country which requires energy. Someday, they will be competing head to head with the United States for oil reserves. And since we are more distrusted around the world (thanks Mr. President) than they are, they’re likely to fair pretty well in acquiring their needed reserves.

So what about our energy policy? What is our energy policy? While everyone is trying to find out what Dick Cheney’s meetings were about with energy companies, no need, I can fill you in right here. Simple, our energy plan is to allow energy companies to explore and drill on federal lands at no cost to them, and have the bill footed by the taxpayer. Case in point, just recently, our president outlined a plan where some closed military bases wold be converted to processing plants to help with capacity output. Hmmm, I wonder who is paying for those conversions. Anyway, read on…..

By ANDREW ROSS SORKIN
Published: June 26, 2005

REMEMBER when people worried that an Asian country would buy everything in the American economy that wasn’t nailed down? Well, those complaints are coming back, except that the nation doing the buying is China, not Japan.
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Illustration by The New York Times

With the China National Offshore Oil Corporation’s $18.5 billion unsolicited bid for Unocal last week, Washington bigwigs and corner-office executives are making their wrinkle lines worse fretting that the Chinese may buy another slice of America.

Some cringing began earlier in the week, when the Haier Group, one of China’s biggest companies, bid to acquire the Maytag Corporation, the appliance maker, for about $1.3 billion, surpassing an offer from a group of American investors. Add to that Lenovo’s recent $1.75 billion acquisition of I.B.M.’s legendary personal computing business, and some would have you believe that we should be in full panic mode.

While there are clearly important foreign policy and trade questions raised by China’s emergence as a deal maker in the United States, it is less clear that these deals – and others that will surely follow – are as problematic as they may appear at first.

Many deals with Chinese companies – and, by extension, the Chinese government – may actually help the United States economy, just as China has helped prop up the nation by buying Treasury bonds en masse.

Indeed, so far, the businesses in which China has taken an interest could be categorized as “least likely to succeed.” And the Chinese may eventually revive them.

Look at Maytag. That struggling company is a business that no other strategic rival in the world – yes, the entire world – was prepared to bid on. Before Haier expressed interest, the only potential buyer was a consortium of private equity players led by Ripplewood Holdings of New York. And what do you think they would likely have done with the company? The Maytag repairman would almost certainly have lost his job, along with dozens if not hundreds of others until the private equity group trimmed enough costs that it could take some cash out by flipping the business to another private equity team. This hot-potato game might have gone on for a decade or two until the company was milked of its very last dollar.

Haier, on the other hand, wants Maytag for its brand and its managers’ experience, so it can have some help building the business. While Haier is also likely to cut jobs, pink slips will probably come much slower in the United States. And the Maytag brand, its culture and legacy will probably live on much longer.

Wall Street bankers who have been plying the Kennedy Airport-Beijing route say the Chinese are expected to come searching for more underperformers in the United States. Not so much for their current business prospects, but for the overnight brand awareness and legitimacy they lend. Just as important, they want American managements and their institutional memory to help guide them.

The sale of I.B.M.’s PC business to Lenovo, which also had some of those Washingtonians in a huff talking about national security issues, is a perfect example of a deal in which a Chinese company wanted American management and skill. After all, the product itself – I.B.M.’s PC – was going nowhere fast.

And if these companies are really going to die anyway, the Chinese will be left holding the bag.

To be fair, the bid by CNOOC, as the Chinese oil company is called, is considerably more complicated. But at base, lawmakers and investors should remember that despite Unocal’s history – it was founded in 1890 as the Union Oil Company of California – it is already more Asian than “made in America.” About 73 percent of its proven natural-gas reserves are in Asia. And if CNOOC acquired Unocal, it “would not increase energy flows to the Chinese market, because most of Unocal’s upstream assets are locked up by long-term contracts to supply other regional markets,” according to Jason Kindopp, an analyst at the Eurasia Group.

And then there is the even more basic argument about capitalism. “U.S. oil companies need to play on an equal playing field around the world,” said Larry Goldstein, president of the Petroleum Industry Research Foundation. “The prospects of that happening are diminished if the U.S. government interferes in a deal like this,” he said.

Mr. Kindopp makes the point even stronger, with a slight twist: “The main long-term risk is if the economic nationalism driving Beijing’s quest for energy becomes the norm, compelling Washington, Tokyo, New Dehli and others to adopt an equally strategic view of energy security.”

But in the end, the Washington brow-furrowers probably won’t need that Botox anyway: Chevron, not CNOOC, is likely to win Unocal.

Chevron, whose earlier $16.4 billion bid for Unocal was topped by CNOOC, is likely to prevail with that lower bid. Investors, you see, are likely to side with Chevron, not because they are xenophobic but because they most certainly hate political uncertainty.

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