Well, this Sunday is the 5th of May and it represents the two month anniversary of the last announcement from WCL. This announcement indicated that in respect of the indicative and non-binding material transaction proposal, “The WestSide Board has decided to bring this process to a conclusion in the near term.” In my own discussions with WCL, it has been indicated that near term should be measured in weeks rather than months and as of this Sunday, we start counting in months.
So, I am anticipating that over the next four trading days that there will be an announcement from WCL bringing this matter to a conclusion – one way or another.
And this is why I think I am delusional – the events over the last 15 months would suggest that nothing is going to change, no externally obvious progress will have been made, the minority shareholders will not be any better informed then we where two months ago and that I will continue to be disappointed.
The question remains for me is why is WCL allowing this process to be draw out for so long?
There are only two benefits that I can see from this protracted process. The first has been the general progress on field development and the accompanying reserve upgrades which WCL has achieved since this process started back in January 2012. And of course, this is only a benefit in a takeover situation if it translates into a higher price, of which there is no guarantee. The second has been the steadily increasing gas price environment in Queensland, although we can’t credit management with this benefit.
The negatives of the process are many, and include (in no particular order): • It provides a distraction for the Board and Management; • It effectively eliminates the ability to enter into a GSA in the mean time; • It give the suitor time to negotiate with third parties for gas supply; • The uncertainty damages the share price; • It frustrates the hell out of me (and maybe others).
The share price point is an interesting one – last time I looked it was 23cps – surely an indication that there will be no positive conclusion to the process. Down about 45% so far this calendar year... that’s not a whole lot of value add...
But back to what management are doing. I can’t help thinking that based on what I’ve seen of their actions to date that they think that there is something very real here to pursue – hence the reason why WCL has persevered for so long with the process. But I am also starting to think that the Board could have made a better fist of dealing with the counterparty(s).
My first criticism is strength. In my opinion, if there is no process conclusion this week then WCL will look very weak. Twice now they have announced to the market that effectively ‘time is up’ and twice they have not acted. Any good negotiator knows that there is a point where you walk away, and if you threaten to walk away you need to follow through or nobody will take your threats seriously in the future.
The second is disclosure. For a moment I am going to assume that the counterparty is Chinese (although no-one from WCL is confirming or denying this). My understanding and experience is that Chinese do not like ‘losing face’ – the embarrassment caused by not being able to successfully conclude an endeavour. WCL should have insisted that the identity of the counterparty was disclosed from early on in the process. This would have given WCL more leverage when it threatened to walk away as actually walking away would have embarrassed the counterparty.
Of course (assuming the offer is somehow indirectly related to LNG.AX), Gladstone Ports Corporation should also cop the ire of WCL and its shareholders. Had it stuck to its guns on LNG’s site agreement timetable, I would assume this process would have been completed prior to the end of 2012. As it is, LNG only have another two months to secure access to gas under the current timetable, which means if WCL is going to be part of the mix, a takeover (or GSA) will need to be secured very shortly. Of course, Gladstone Ports Corporation could just extend the LNG timetable again...
So what’s next for WCL. Knowing what I know (which isn’t much because deal specific disclosure has basically been negligible to date), unless a takeover offer is imminent in the near term (and by near term I mean a week or two – not two months plus) I would cease discussions and go out and hunt a GSA in good faith. If they still want WCL they are free to lodge an offer at any time, but if they leave it too long they might find that WCL’s gas is all locked up under GSA with a third party.
As you can probably tell, I am very disappointed about how this process has progressed. If nothing concludes this week then I will be asking myself whether WCL’s disclosures to date have resulted in me being misled, because it is starting to feel that way.
Watching in the West Coaster
WCL Price at posting:
23.0¢ Sentiment: None Disclosure: Held
