Ann: Trading Halt, page-11

What Criterion, writing in the Australian today, thinks -

IT’S time to bid adieu to what must be the longest share overhang in Australian corporate history: Shell’s 23 per cent stake in the oil and gas producer.

Flush with funds from strong production and the Leviathan non-transaction, Woodside (WPL, $42.85) is doing the staid thing and opting for a selective buy back of 78m shares (9.5 per cent of Shell’s stake) for $US2.68 billion ($2.82bn). This will be done at $36.49, a 14 per cent discount to Woodside’s share price in the five trading days leading up to yesterday.

Shell has also entered its own agreement to sell 78m shares to instos at $41.35 a share, which leaves the Dutch giant as a 4.5 per cent holder in Woodside. This, notes Woodside CEO Peter Coleman, is a “symbolic” level as it leaves Shell — a long time technical partner — as a non-substantial holder.

Management promises the transaction, which is subject to a shareholder vote, will deliver enhanced earnings and cash flow per share of 6 per cent and 8 per cent respectively. It will also not affect current dividend policy of a generous 80 per cent payout. The hard-negotiated measure looks more engineered than a Porsche but contains a measure of compromise you wouldn’t see in the Teutonic marque.

One bone of contention is that the buy back price consists of a $US7.95 ($8.54) a share capital component, with the rest consisting of a fully franked dividend. As one fund manager argued, why not offer a universal buyback — with attached imputation — to local holders. Management argues that such a gambit would not have tackled the Shell overhang issue — or at least not neatly so. As for the franking credits delivered to Shell, Shell is accepting a maximum allowable 14 per cent discount for the shares.

Given the deal is subject to 75 per cent shareholder approval, expect a further airing of this issue.
For its part, Shell had declared its stake as non-strategic, having been famously knocked back by the Foreign Investment Review Board (a.k.a. Peter Costello) when it bid $14.20 a share in 2001. With the proliferation of LNG projects since, the “national interest” grounds seem spurious now, but that’s in glorious hindsight.

Given the feverish M & A mood, Shell’s exit will prompt speculation the $35bn market cap North West Shelf stalwart is a takeover target. Coleman protests the board isn’t setting up the company to be bought as a takeover target. “You might want to talk to the people who are thinking of doing that,’’ he says, without mentioning any BHP Billiton names. In any event, an acquirer may have found the job easier with access to Shell’s unwanted cornerstone stake. We’ll read the mandatory expert report with interest.

Our own inexpert view is that while Woodside won’t win brownie points for shareholder democracy, the plan is a reasonably way to kill two birds with one stone. Hold.