Takeover dance just warming up for Oil Search
2015-09-14 10:13:37.292 GMT
By MIchael Smith
Sept. 14 (Financial Review) -- It is all part of the
corporate takeover dance. Lob a low-ball takeover offer and
then complain when management won't give you the time of day to
at least discuss the upside of the offer on the table, even
when it has no chance of succeeding.
Woodside executives have been trying to get in the same
room with the elusive Oil Search boss Peter Botten??? for more
than a week. Woodside chief Peter Coleman flew from Perth to
Sydney early last week to meet with his Oil Search counterpart
who was nowhere to be found.
Oil Search gave Woodside the cold shoulder a second time
on Sunday when a meeting scheduled between Botten, Oil Search
chairman Rick Lee, and Woodside chairman Michael Chaney was
cancelled. Instead, the Oil Search board met formally for the
first time where they concluded that the bid grossly
under-valued the company.
Woodside is frustrated Oil Search won't give it an
opportunity to at least discuss the upside of the takeover
proposal, which includes elements such as cost synergies and
the strategic and funding advantages of combining the two
companies. But Lee told analysts on Monday the company and its
shareholders had enough information about the offer to conclude
it would dilute investors' interests in the company's growth
prospects.
Botten was absent from that analyst briefing as well
because he was travelling to Melbourne to speak at a conference
in Melbourne where, somewhat ironically, he ended up being sat
next to senior Woodside executive Phil Loader on a panel.
Woodside wasn't talking on Monday, but said in a statement
it was surprised and disappointed the offer was rejected
although there was little doubt in the market Oil Search would
knock it back. Oil Search's refusal to meet for a chat is the
target's way of saying come up with a price worth considering
and they will talk. Unlike Santos, which also has LNG interests
in Papua New Guinea, Oil Search does not need a takeover offer.
While its share price was hammered as oil prices fell, it has
quality assets, a strong balance sheet and growth prospects.
There is still a modest takeover premium in the stock,
which indicates investors have not given up on the idea of a
successful bid.
Woodside, which is under pressure to invest in growth
options, could come back with a higher offer or walk away
altogether and focus on other potential deals. Another scenario
is that other potential bidders, such as its powerful LNG
partners Exxon and Total, will take a look at Oil Search.
As you would expect, Lee is not giving much away about
what he believes a fair price would be although analysts have
said a 25-30 per cent premium is a more realistic place to
start talking rather than the 13 per cent premium which was on
the table.
Lee has left the door open for other bids, saying Oil
Search would go through a similar process if anyone else put
something on the table.
The Woodside bid has highlighted the growth potential of
the PNG LNG and the Elk-Antelope LNG development in Papua New
Guinea.
Lee talked up Oil Search's deep links with the local
communities in PNG and the government, which owns a 10 per cent
stake in the company, and was among the shareholders who told
the board not to back the offer.
He says the offer undervalued the company on whatever
basis you looked at the offer, including Oil Search's opinion
of Woodside's value and assets. He also said there were little
benefits in the potential synergies from a deal, besides the
usual head office costs.
Asked about other bidders, Lee said: "If other people
choose to make a proposal we will apply exactly the same test.
Our primary obligation is to Oil Search shareholders. And we
will be going through a similar process with anyone who puts
something on the table we need to respond to."
Lee is playing down where the company sees itself now that
it has fallen into the takeover spotlight and says there is
nothing that has made it re-assess its priorities.
michael.smith@fairfaxmedia.com.au
Twitter @MikeSmithAFR
