Woodside (WPL) shares are expected to resume trading today with a price rise anticipated by investors after the sell down by Shell of most of its stake in the largest pure hydrocarbon company on the ASX.
Shell sold a 19% stake in Woodside through an underwritten placement to investors and to Woodside.
Shell raised $US5 billion ($A5.3 billion) in cutting its stake to 4.5%, a move that will also raise Woodside’s attractiveness to big offshore suitors.
When the shares resume trading today from the $42.85 they closed at on Monday afternoon (the shares were halted yesterday to allow Shell to place part of its stake with local investors), they are likely to be re-rated for three reasons.
The first is the company’s increased attractiveness as a possible takeover target, given that Shell’s blocking stake has all but gone.
The second reason is that Woodside will now have a bigger Australian market index weighting, meaning big investors will have to top up their holdings to meet the higher weightings in their portfolios, especially the increasing number of big investors who track the ASX200 index.
The third reason is the uplift in earnings per share of 6%, higher cash flows and less dividends outflow from the company because of Woodside’s buyback.
Shell sold 78.3 million shares to investors at $41.35 a share, or a 3% discount to Woodside’s close on Monday.
Woodside is buying back 78.27 million shares at a price of $US34.24 a share, a much bigger discount.
Oddly no shares were reserved for Woodside’s shareholders, institutional (though many will be in the investor sell down to around 100 groups) and to retail holders who might have wanted to top up their holdings.
Shell last sold a stake in Woodside in 2010 and in February of this year, Shell sold its Geelong oil refinery and servcie station network to the world’s largest independent oil trader, Vitol, for $US2.6 billion.
Shell sold the stake because it is raising cash by getting rid of unwanted or marginal assets.
“Today’s announcement is part of our drive to improve Shell’s capital efficiency and to focus our Australia growth in directly owned assets”, Shell chief executive Ben van Beurden said in a statement issued in London and in Australia.
“It doesn’t change our view of Australia as an important player on the global energy stage, or Shell’s central role in the country’s energy industry.”
Woodside chief executive Peter Coleman said in a statement the buyback would deliver “real value” to shareholders through increased earnings, cash flow and dividends per share.
“This combined transaction is an efficient and disciplined use of capital,” Mr Coleman said in the statement.
“In parallel, it allows us to optimise the company’s near-term capital structure, while maintaining the capacity to continue to develop existing projects and make additional investments in new growth opportunities.”
Mr Coleman also said the deal would increase liquidity of Woodside shares in the market and resolve the uncertainty over the fate of Shell’s remaining stake in Woodside.
The buyback by Woodside comes after the delay to its huge Browse LNG project in WA and the decision to exit the Leviathan gas project in Israel.
No mention was made though of talk of cost cuts coming at the company with up to 800 jobs rumoured to be in danger of going.
The transaction is contingent on approval from 75% of Woodside shareholders who vote on it, and a positive assessment from an independent expert. It is expected to be done in August.
Standard & Poor’s affirmed its BBB+ credit rating on Woodside’s debt, but lowered its outlook from positive to stable.
“We have revised the outlook to stable from positive because we believe that Woodside’s credit metrics will not remain at current levels following the partly debt-funded buyback,” the rating agency said.
