Oil Search rejects A$11.6b Woodside bid

Sydney: Oil Search has rejected an A$11.6 billion (Dh30.19 billion) takeover bid by its Australian rival Woodside, saying that the proposal was “highly opportunistic and grossly undervalues the company”, but indicated that it would consider other offers.

Analysts said that it was unclear whether Woodside would increase its offer or if another suitor would be tempted to make a bid, amid a wave of global mergers and acquisitions activity in a sector buffeted by a slide in oil prices.

“The challenge for Woodside management is its shareholders do not support a higher bid and the company has to date built a reputation for prudent allocation of capital,” said Dale Koenders, analyst at Citigroup.

UBS said that Woodside would need to raise its offer to re-engage with Oil Search given the strength of the bid rejection.

“Since receiving the proposal, the company has undertaken substantial shareholder engagement. The overwhelming feedback has been that this proposal has little merit,” said Oil Search on Monday.

The initial offer on September 8 of one Woodside share for four Oil Search shares implied an offer price, based on the closing price the day before, of A$7.65 or a 14 per cent premium. Analysts said that other suitors could be tempted to approach the company given its strong growth prospects.

Oil Search’s board met on Sunday night to consider the all-share offer from Woodside and feedback from major shareholders that include the government of Papua New Guinea.

Woodside said that it was “surprised and disappointed” that its proposal was rejected without being granted a meeting with Oil Search management.

Rick Lee, Oil Search chairman, told analysts that accepting the offer would have diluted the growth profile available to shareholders and confirmed that a planned meeting between the companies had been cancelled.

In a conference call with analysts on Monday, Lee signalled that Oil Search would consider rival offers. “Should other people choose to make a proposal we will apply exactly the same test to that proposal,” he said.

Any takeover is conditional on regulatory approval from the PNG government, which owns 10 per cent of Oil Search.

Simon Mahwinney, managing director of Allen Gray, a fund that owns shares in Woodside, said that there is a good chance that management would not pursue Oil Search further.

“Woodside management have in the past displayed an unrelenting focus on capital discipline and it is a quite possible they will now simply walk away,” he said.

Oil Search’s finances have been transformed by the 29 per cent stake it owns in a liquefied natural gas project in Papua New Guinea that came on stream in April last year. The company made a net profit after tax of US$227.5m in the six months to the end of June 2015, up 49 per cent on the same period a year earlier, in spite of sharp declines in oil and gas prices.

In addition to its 29 per cent stake in PNG LNG, in which ExxonMobil also holds 33 per cent, Oil Search has a 22.8 per cent holding in a separate LNG project in PNG operated by France’s Total.

Shares in Woodside were down 2.4 per cent at A$27.72 midday Monday in Sydney while Oil Search was down 1 per cent at A$7.375.

— Financial Times