“Legal Barrier to Entry, Potential Takeover Premium, and Cross-border Acquisitions: An Empirical Study of Cnooc’s Unsuccessful Takeover of Unocal” by Kam-Ming WAN
University of Texas at Dallas
University of Hong Kong
In 2005, the U.S. Congress challenged Cnooc, a Chinese state-owned company, for acquiring Unocal, a U.S. firm. The challenge by the U.S. Congress creates a legal entry barrier and discourages foreign bidders from buying U.S. oil companies. This paper examines the stock market reaction of the U.S. oil industries to that political opposition. Using an event study methodology, we find that such legal entry barrier results in a substantial loss to the U.S. oil industries. For the six political events that oppose Cnooc's bid for Unocal, the total loss in market value in the oil refining and oil and gas exploration industries exceeds $60 billion and $14.7 billion, respectively. This study is the first to analyze the stock market reaction of domestic nonmerging firms to legal entry barrier on cross-border acquisitions.