Uncharted Waters

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e may be right. Chevron has not yet countered, so CNOOC's remains the richer bid as Unocal shareholders prepare to vote on Aug. 10. But despite all the high-priced bankers and lobbyists, Fu did not appear to be prepared for what Schurtenberger had discussed at the board meeting in late March: the political firestorm the bid would provoke in the U.S. Fu, CNOOC sources say, was stunned by the June 30 Congressional resolution objecting to the merger. So was the Chinese government. One of Fu's advisers says Beijing, already sparring with Washington over the value of China's currency and U.S. quotas on Chinese-made textile imports, was not expecting a hornet's nest to be stirred up.

In Washington, CNOOC responded last week by trying to kick-start the approval process, asking the Committee on Foreign Investment in the United States (CFIUS), run by the U.S. Treasury Department, to begin its analysis of the bid. The only problem was, CFIUS, an interagency body that reviews mergers between foreign and American companies for potential U.S. national-security risks, gets to work only after a deal is done. It won't move until it is clear that CNOOC is going to win Unocal. Banking sources say Chevron may well wait until shortly before the Aug. 10 Unocal shareholders' meeting before announcing a sweeter bid, hoping to end matters then and there. But Unocal's own investment bankers, Morgan Stanley, appraise Unocal's stock at between $55 and $68.25 per share—not that far from the $67 that CNOOC has already offered. Wall Street already views CNOOC's bid as rich. Increasing it will prompt shareholders to wonder whether it is overpaying.

How much higher might the two companies vying for Unocal go? Fu said in an interview last week that his "board is determined to win this bid," a statement some interpreted as a sign that CNOOC will counter a higher Chevron offer. Unocal last week told CNOOC executives that its board might still be open to a merger with the Chinese company if CNOOC meets certain conditions, including shedding some of Unocal's American assets to appease political opponents worried about the loss of domestic U.S. reserves. Directors Courtis and Henkes have been pushing this idea for months, banking sources say, and Fu himself is considering it.

According to TIME's sources, CNOOC's CEO may also decide to bring in a U.S. partner to help shoulder some of the risk and defuse the anti-Chinese political atmosphere. A spokesman for CNOOC denies that this option is being considered—"we're full steam ahead with our current bid"—but some analysts believe bringing in a partner would have been the wisest course from the start. If it happens, it may also be a signal that in the midst of a historic transpacific takeover bid, CNOOC's management and its board may finally be on the same page.