Just as the market was beginning to wonder whether Woodside Petroleum had a back-up plan for its takeover ambitions on Oil Search, sources are pointing to the Perth-based player gearing up for another go, this time using a more strategic approach.
Despite reservations among its shareholders about any improved offer, Woodside is thought to be seeking to buy the Papua New Guinea government out of its circa 10 per cent stake in Oil Search and would follow that up with a sweetened scrip offer for the rest of the shares.
The theory is that Woodside would pay $8.50 a share for the government's stake and would structure the deal to take into account the collar arrangement the government has with UBS, which funded its acquisition of its Oil Search shares last year. That would represent a 10 per cent premium to Friday's close, and a 3.6 per cent premium to the $8.20 the government bought the shares for when oil prices were about double current levels.
Woodside boss Peter Coleman has publicly asserted that Woodside's original one-for-four scrip proposal put to the Oil Search board in September was fully priced, and that raising the $11.6 billion offer would be dilutive to Woodside shareholders. At the same time the company has kept all its options open, going as far as correcting a newswire report claiming Coleman had said the company didn't intend to raise its bid, in case that triggered issues under the 'truth in takeovers' policy.
Investors in Woodside are thought not to favour a higher offer for Oil Search, particularly as its key asset, a stake in ExxonMobil's $US19 billion PNG LNG venture, is a non-operated one and offers no control of the project. Some have described the move as a portfolio play that offers few synergies and which can be replicated in a stock portfolio.
Sources say the complicating factor of the UBS collar can be handled because the PNG government still has title over its Oil Search holding and can deal in the shares. In any case the UBS financing is said to unwind early in 2016 unless it is refinanced, with some whispers the state has a sovereign bond issue in mind for that.
Read more: http://www.afr.com/street-talk/woodside-petroleum-gets-strategic-on-oil-search-20151115-gkza9c#ixzz3rkx3y3VU
Follow us: @FinancialReview on Twitter | financialreview on Facebook
