Four years may not seem like such a long time. However, four years ago America and China fought a major battle over Cnooc Ltd.'s bid for Unocal Corp., notes The Wall Street Journal's Heard on the Street column. Next week marks the fourth anniversary of when Cnooc shook up ChevronTexaco's $18 billion bid for Unocal by announcing it was considering a possible bid. Despite the political maelstrom that unfolded, Cnooc formally placed a bid in July. By the end of August, Cnooc admitted defeat, and retreated, allowing ChevronTexaco to close its deal.
A lot has changed in that time. President Obama has replaced Bush, and Democrats also have won control of both chambers of Congress. Perhaps more importantly, the U.S. economy is mired in the longest, and deepest, recession since World War II. Is this enough of a recipe to change American attitude toward Chinese takeovers of U.S. companies? If Heard on the Street's sources are correct, the Chinese think so. As Heard wrote:
"Now, with many assets in or near bankruptcy, we overhear that the Chinese have considered major moves in banking, autos and energy in the U.S. and Europe. China's Geely Automotive Holdings, for one, has sniffed around the car industry, recently submitting a bid for General Motors' Saab unit. U.S. politicians could face a thorny choice: pumping more taxpayer funds into companies or letting them fall into the hands of the buyer of last resort."
Not so fast. Simply because Geely sniffed around at Saab AB and might even secure the Swedish brand doesn't mean the storm over Cnooc couldn't happen again. Had Geely reportedly sniffed around General Motors Corp. (NYSE:GM), that might well reignite the controversy over national security concerns, despite the fact that many foreign automakers, particularly Japanese and South Korean, have set up shop in the U.S. Geely should have no trouble buying Saab, Saturn or Hummer, but all of GM if it so chooses would be a different case. Despite the fact that GM's heyday is behind it, the Detroit company still remains a central component to the American economy so much so that the government has stepped in to bail it out. Why would Congress allow such an American icon to go to the Chinese?
Moreover, Heard is correct in surmising that had Chinese firms sought to buy bankrupt retailers such as Linens 'n Things Inc. or Circuit City Stores Inc., which basically were vassals for Chinese contract manufacturers, few congressmen would have cared.
However, the same conclusion about select brands and wholesale corporations central to American prosperity cannot be sweepingly made. Even though the Chinese have some control over the dollar through its massive currency reserves and T-bill purchases, had the Chinese sought to buy American International Group Inc. (NYSE:AIG) or Citigroup Inc. (NYSE:C), it still would not have past muster in Washington -- not only at CFIUS and Congress, but at the Fed and Treasury and in Citi's case, the FDIC. As is the case with automakers, the U.S. has allowed foreigners to buy stakes in big banks (Mitsubishi UFG Financial Group's investment in Morgan Stanley [NYSE:MS], Saudi Prince Alaweed's investment in Citigroup), and even allowed foreigners to buy whole financial firms (Canada's Manulife Financial Corp.'s [NYSE:MFC] purchase of John Hancock Financial Services Inc.), but under very tight and restrictive conditions: no voting power, a cap on the size of the stake, etc.
Simply put, the U.S. government -- regardless of which party controls Congress and the executive -- will never allow a systemic too-big-to-fail entity go to the Chinese. - Matthew Wurtzel
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