In response to last week’s proposal from Woodside Petroleum (ASX:WPL) to merge with Oil Search (ASX:OSH), the board of Oil Search has rejected the proposed acquisition following a detailed evaluation. Wise-owl has already reported about the potential merger between Oil Seach and Woodside last week.
In an announcement to the ASX this morning the board has unanimously decided to reject the non-binding conditional indicative proposal. Woodside Petroleum offered to acquire all of the shares in Oil Search for one Woodside share for every four Oil Search shares.
Oil Search states that the offer grossly undervalues the Company and after engaging with shareholders “the overwhelming feedback has been that this Proposal has little merit.”
The reason why Oil Search and its shareholders believe that Woodside’s proposal undervalues the company are the growth opportunities that will emerge from its “material equity position in the world class PNG LNG Project”. OSH believes there is substantial scope for capital growth not only for the LNG project but also due to its low cost oil and gas production as it targets to double production by the early 2020s.
Woodside’s approach comes after global oil prices have halved in the past 12 months due to significant oversupply and lower than expected demand triggered by a slowdown in China and other emerging economies. Most analysts believe that oil prices will inevitably recover over the next few years as soon as the market regulates itself. The board of Oil Search shares the same views as it remains confident that its existing operations will be able to provide growth opportunities that will exceed the value of Woodside’s takeover bid.
Woodside Reacts “Surprised” and “Disappointed”
Woodside responded “surprised” and “disappointed” about Oil Search’s announcement and complains that the board did not meet with Woodside in order to understand the benefits of the opportunity or negotiate terms.
Woodside states that the offer compares favourable to other recent transactions in the sector as it provides a substantial premium on several measures. A merger would create “the regional oil and gas champion for both Papua New Guinea and Australia with a global portfolio of world class assets and development opportunities.”
It appears unrealistic that Woodside will up its offer for Oil Search, however if the board of Oil Search is willing to negotiate the terms under the offer there might be a slight chance that an agreement can be made. However Wise-owl recommends to sit on the sideline and to not engage in any speculative trading based on rumours.
Author: Simon Herrmann
Sep 14, 2015
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.