yep, absolutely right imho.
the previous approach by STX to WGO on a merger is now history. Gone. That was announced March 2020, so almost a year ago.
The circumstances applicable at that time were totally different to the situation at the current point in time.
GSA's, wells being drilled, gas pricing, LNG pricing, ban on export of domestic gas, much of Waitsia gas being taken out of domestic equation, new pipeline to Pilbara, stronger push for renewables, and Haber proposal.
If we are frustrated about the price differential, just imagine what the two biggest s/h are feeling.
They still own over 30%+ of WGO - so their views will carry the day on any scenario. And we know that.
The board rejected the STX proposal, because they said it undervalued the assets of WGO. They particularly mention the Spanish assets. I reckon the two major s/h of WGO value those Spanish assets more highly than the rest of us. Maybe because they are over that side of the world, and understand the European scene better than us?? If we/us wanted exposure to Spanish O&G assets, would we invest in WGO, or would we look to other European investments?? I bet we are all in WGO for its WA assets.
The other thing with WGO's overseas assets, is not just valuation issue, but a management issue - how does STX manage those assets, how do they sell the assets, what liabilities might arise in a jurisdiction they are unfamiliar with etc??
So if WGO somehow separates the Spanish assets from the WGO structure/equation, then a value of WE assets is more transparent. WGO and STX might agree to some basis of valuing the asset.
Having said that, if the consideration for a T/O is STX scrip, then WGO has to get comfortable with the value of the other STX assets such as South E, Haber etc etc. They would need to agree to some basis.
One of the conditions last March was a unanimous WGO board approval. So any bid will need biggest s/h agreement.
IMHO, there is no doubt that circumstances have changed such that a merger makes even more sense now, than it did March 2020. And with the resolution of the stumbling block of Spanish assets will grease the wheels.
A combined WGO/STX will provide:
- economies of scale
- easier funding
- access to more material equity capital, because the merged entity will be bigger, and more likely to attract institutional support
- it will be much simpler for Instos to understand, value, and give them scale of investment.
- the merged entity will have a simpler mgt and board structure -rather than two independent (and not necessarily aligned) companies
- each has significant GSAs with credible customers. I would argue that WGO's contract with Alcoa would be on much better terms than STX's contract with Wesfarmers, simply because it was negotiated earlier in the process.
- it would resolve the issue of pricing disparity between WGO and STX
- it would provide STX with access to a way larger potential 2P reserves source with which to develop the Haber proposal. STX simply cannot get to any FID level until such time as it has certified 2P reserves to underpin that Haber deal. It cannot progress any funding or equity either without certified 2P gas.
- a merged STX/WGO would have the scale (assuming WE3,4,5 are even partially successful) to supply the new pipeline to Pilbara
there must be more reasons??
if it makes sense to us, then it for sure would make sense to the boards.
all just IMHO.
cheers
*** PS --- I notice that in STX's response to its previous merger proposal, that it was to be by way of an "agreed scheme implementation deed".
SO - that means that it is WGO which presents the Scheme to WGO shareholders. Not STX. So not a takeover under T/O scenario.
A Scheme of Arrangement ensures STX acquires 100% of the WGO shares.
ALSO --- it means that STX does not need to get the approval of STX shareholders in order for the merger to proceed.
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