The Australian stockmarket went for a run yesterday, shaking off weak trade figures from China, thanks to the $11.6 billion surprise bid for Oil Search (OSH) by Woodside (WPL).
The all paper offer (a quarter – 25%) of a Woodside share for each Oil Search share sparked an intense rally in oil and gas stocks, and saw the wider market jump more than 84 points, or 1.7%, in one of the strongest rallies not linked to the current round of market volatility.
Oil Search shares surged by more than 17% to $7.90 on the ASX, but Woodside fell 3% or 94c to $29.66.
This is the biggest takeover in Australia for more than four years and one of the largest ever.
But unlike many other bids, it is all paper and will require the PNG Government and a sovereign wealth fund of Abu Dhabi to give their approval and accept the offer and take up shares in Woodside. Between them they control 23% of Oil Search, so they could end up with 6% of Woodside.
While Kerry Stokes’ Seven Group Holdings has been dabbling in the tiddlers like Beach Energy (BPT) and Drillsearch (DLS), taking dominant but not absolute 19.9% controlling stakes in each, punters have been looking for the big deal, with struggling Santos the top of most takeover lists.
But not this time as Woodside revealed its $11.6 billion move paper offer for Oil Search, which has a big stake in the recently started PNG LNG project, and interests in surrounding oil and gas fields.
Many hedge funds and punters missed this one and hopped into Oil Search shares yesterday after a brief trading halt ended.
Santos remains unwanted – its finances are too much of a headache. After jumping nearly 12% in early trading, Santos shares eased sharply to be up 5.2% at $4.41.
Woodside’s offer which implies a skinny 13% premium to Oil Search’s closing price on Monday of $6.73, is subject to regulatory approval from the PNG Government and satisfactory due diligence. Some analysts say the premium rises to 25% when the average Oil Search price over the past month is the basis for comparison.
But that’s immaterial in this offer which is all paper and will depend on the Woodside share price. The longer it falls, the skinnier the premium gets. So look for a lot of ‘positive’ news from Woodside in coming weeks to try and get the price up.
Oil Search said while it will consider the deal its notes its shareholders are entitled to an offer which “adequately reflects” the company’s value which includes a stake in the foundation Exxon Mobil-led PNG LNG project along with an associated (production) Train 3 expansion and the Papua LNG project.
Up till Monday Oil Search had a market value of $10.3 billion with its shares down 30% in the last 12 months due to the slump in the oil price.
Woodside shares have also plunged by nearly 30% in the same time, valuing the company at just over $25 billion.
“The Oil Search board intends to review the proposal and will update shareholders and the market in due course," Oil Search said in a statement to the ASX yesterday.
“The company wishes to emphasise that there is no guarantee that a binding proposal can be agreed between the parties.”
Oil Search earnings are now rising (despite the low oil and gas price) because the huge PNG project came on stream more than a year ago and is generating early profits and cash.
In late August, Oil Search reported a 49% jump in first-half net profit to a record $US227.5 million, as a full half year’s share of production from the PNG liquefied natural gas project more than offset plunging global oil, and gas prices.
Sales climbed 69% for the six months, which was also not unexpected.
Oil Search declared a dividend of US6c per share, three times the first half payout for 2014 when the company was seeing the PNG LNG project build up output.
