Woodside Holders Reject $2.7 Billion Buyback Plan With Shell

Woodside Petroleum Ltd. (WPL)’s $2.7 billion plan to buy back stock from Royal Dutch Shell Plc (RDSA) was blocked by shareholders, leaving Europe’s largest oil company with a larger, unwanted stake in the Australian gas producer.

Woodside investors cast 72 percent of their votes in support of the buyback, short of the 75 percent needed, according to a company statement after a shareholder meeting in Perth. The stock fell 1.4 percent to close at A$41.92 in Sydney trading. Australia’s benchmark index declined 1.4 percent.

The rejection by shareholders spoils part of Shell’s plan to raise about $5 billion by trimming most of its stake in Australia’s second-biggest oil and gas company. Speculation that The Hague-based energy giant would sell its remaining holding has been seen as a drag on Woodside’s share price as the company faces pressure to boost reserves and production.

“Whether Shell is there or not, they still have the same question before them: How do you build a growth profile over the next 10 years?” John Robertson, an investor at EIM Capital Managers in Melbourne who owns Woodside shares, said by phone. “That’s more important to the trajectory of the share price.”

Shell holds about 13.5 percent of Woodside, according to data compiled by Bloomberg. Shell in June sold 78.3 million shares to investors at A$41.35 each, a 3.5 percent discount to the June 16 close, the day before the deal was announced.

Mounting Criticism

Woodside faced mounting criticism from investors that Shell was getting preferential treatment through the buyback, fueling speculation the Australian company might undertake a buyback for all holders should the deal collapse.

Shell said yesterday that it would take time to evaluate its options if Woodside shareholders blocked the transaction. While the company didn’t depend on the deal going through, the stake isn’t strategic, Chief Financial Officer Simon Henry reiterated on an earnings conference call.

Woodside will review its capital position, Chairman Michael Chaney said today at the shareholder meeting.

“An equal-access, off-market buyback would involve less certainty regarding the price and quantum of the buyback depending on shareholder participation and would not provide an orderly reduction of Shell’s shareholding,” he said.

The buyback was a great deal for Shell because of the generous allocation of franking credits, which reduce an investor’s tax bill, and with Woodside trading at three-year highs, Macquarie analysts said in a report last month.

Plan B

Woodside as an alternative could put the cash into expansion projects to increase output, or use it for special dividends and buybacks, according to a Morgan Stanley note today. Woodside will have cash approaching $3.6 billion by the end of the year, giving it flexibility, the analysts said.

One option Woodside is considering is a liquefied natural gas development on the west coast of Canada.

As Woodside looks at new investments, uncertainty over the Shell stake will probably still weigh on the share price, said Andrew Williams, an analyst at RBC Capital Markets in Melbourne.

“The overhang is a tangible cap on Woodside’s share price performance,” he said today before the shareholder meeting. “It doesn’t look as though there’s a Plan B.”

To contact the reporter on this story: James Paton in Sydney at jpaton4@bloomberg.net

To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net Keith Gosman, Madelene Pearson

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