Woodside’s Buyback Deal With Shell at Risk of Being Blocked

Woodside Petroleum Ltd.’s plan to buy back shares from Royal Dutch Shell Plc for $2.7 billion is at risk of being rejected by shareholders as it falls short of the votes needed to proceed.

About 71 percent of the proxy and direct votes cast back the proposal, compared with the 75 percent required, the Perth-based company said today in a statement. About 59 percent of those entitled to vote have done so, with a final outcome to be determined at a shareholder meeting tomorrow.

The resolution “needs an avalanche of yes votes tomorrow to get approved,” Nik Burns, a Melbourne-based analyst at UBS AG, said today in a note. Without that, “it looks like the resolution is headed for defeat.”

The buyback is part of Shell’s deal last month to raise $5 billion, trimming most of its 23 percent stake in Australia’s second-largest oil producer. A no-vote would leave Shell with a larger, unwanted stake, and add to Woodside’s frustrations after a plan to invest as much as $2.6 billion in an Israeli gas project collapsed, according to Macquarie Group Ltd.

Shell will take time to evaluate its options if Woodside shareholders block the transaction, Chief Financial Officer Simon Henry said on an earnings conference call today. While the company doesn’t depend on the deal going through, he reiterated that the stake isn’t strategic.

Shares Fall

Woodside shares fell 0.8 percent to close at A$42.52 in Sydney trading. The S&P/ASX 200 Index gained 0.2 percent.

Woodside may offer similar terms to all shareholders if the deal is blocked to allay concerns that investors aren’t being treated equally, according to a July 21 Macquarie report. The buyback is a great deal for Shell with the generous allocation of franking credits, which reduce an investor’s tax bill, and Woodside trading at three-year highs, Macquarie said.

After an “equal-access” buyback, Shell would still be a substantial holder in Woodside with about 11 percent of the shares, according to UBS.

Woodside said June 17 it had agreed to buy back the shares for A$36.49 each, a 15 percent discount to the previous day’s closing price. The Hague-based Shell separately sold 78.3 million shares to investors at A$41.35 each, about a 3.5 percent discount to the June 16 close.