Despite Oil Search (OSH) rejecting the $11.6 billion all paper takeover offer from Woodside Petroleum (WPL), the market reckons there will be a second round, and probably soon.
Oil Search said in a statement issued first thing in the morning that Woodside’s proposal has little merit, is highly opportunistic and grossly undervalues the company.
The question now is how much more will have to be offered by either Woodside, or a new suitor, to turn that into a bid that properly reflects Oil Search’s value, even in these days of weak oil and gas prices.
As a result the share prices of both companies were down by less than half a per cent by the close at $7.44 (Oil Search) and $28.42 (Woodside). Both were down by well over 2% in early trading.
After cancelling a planned meeting on Sunday between the CEOs of both companies to discuss the potential deal, Oil Search formally rejected the offer, saying its board had made a unanimous decision.
That decision had been well leaked to the business media on Sunday, and was in Monday morning papers well ahead of the formal announcement.
“Following a detailed evaluation of the proposal, the board has concluded that the proposal is highly opportunistic and grossly undervalues the company," said Oil Search in the statement.
"Since receiving the proposal, the company has undertaken substantial shareholder engagement. The overwhelming feedback has been that this proposal has little merit."
Woodside revealed its offer of one Woodside share for four Oil Search a week ago, implying an offer price of $7.65 a share, or a 14% premium.
There are market rumours that Oil Search has been approached by another group. The best guess is that it’s ExxonMobil, but no one is talking. But Rick Lee, the Oil Search chairman indicated there was no one else in a briefing yesterday.
While Woodside said it was “surprised and disappointed” that its proposal was rejected without a meeting with Oil Search management, the Oil Search chair 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.
And Mr 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.
And that’s probably why Oil Search shares rose in the afternoon despite another China-inspired bout of weakness. Woodside shares recovered because its investors clearly don’t want the bid to happen, at the moment. An improved price will meet with even more opposition.
This morning, media reports said Woodside Petroleum CEO, Peter Coleman travel to Port Morseby for talks with the Papua New Guinean government to consider whether to improve its $11.6 billion bid rejected by Oil Search.
Mr Coleman is expected to meet Prime Minister Peter O’Neill after Oil Search rebuffed the offer yesterday for undervaluing the company. Oil Search owns 29% of the huge PNG LNG project now in operation and the reason for the offer from Woodside.
The PNG Government has a 10% stake in Oil Search. Will he also talk to an Abu Dhabi sovereign wealth fund which owns another 13%?
Mr Coleman was an executive at ExxonMobil and involved in the PNG project.
