Oil Search Rejects Woodside’s $8 Billion Offer as Too Low

  • Shareholders see opportunistic bid as having little merit
  • Company would discuss any `compelling' offers in the future

Oil Search Ltd. rejected Woodside Petroleum Ltd.’s $8 billion takeover bid, saying the proposal undervalues the company as it seeks to expand in the liquefied natural gas industry in Papua New Guinea.

“The company has undertaken substantial shareholder engagement,” Oil Search said in a statement on Monday. “The overwhelming feedback has been that this proposal has little merit.”

Woodside’s bid of one share for every four Oil Search shares, which implied a 14 percent premium, was too low to win investors’ support, according to Sanford C. Bernstein & Co. and UBS Group AG. The offer valued Oil Search at A$11.65 billion ($8.1 billion) when it was unveiled Sept. 8.

Woodside Chief Executive Officer Peter Coleman is seeking a stake in Papua New Guinea’s LNG industry and has said he is aiming to create a regional “oil and gas champion.” Papua New Guinea’s LNG projects are seen as lower cost than developments elsewhere in the world and economically viable even after a drop in oil prices of about 50 percent in the past year.

“If any proposals are tabled in the future that reflect compelling value for Oil Search shareholders, we will engage on them,” the company said. “Clearly this proposal falls well short of that test.”

Woodside sees its proposal providing a “material premium” of as much as 28 percent to Oil Search’s share price before speculation of a potential approach emerged, the Perth-based company wrote Monday in a statement. A meeting between the two companies, scheduled for Sunday, was called off at Oil Search’s request, according to an earlier statement from Woodside.

Potential Counter-Bidder

“Woodside is surprised and disappointed that the board of Oil Search has rejected the proposal without meeting with Woodside to understand the benefits of the opportunity or to negotiate the terms of a possible merger,” according to the Australian company’s statement.

Woodside, which offered the equivalent of A$7.65 a share, would likely need to offer at least A$8.50, and possibly as much as A$9, UBS estimated in a report last week. Oil Search stock was closed at A$7.45 on Friday, while Woodside was at A$28.41.

Exxon Mobil Corp. is the most logical potential counter-bidder, according to a Deutsche Bank AG report last week. Other possible suitors include Total SA, Japan’s Inpex Corp. or Malaysia’s Petroliam Nasional Bhd, the report said.

Oil Search owns 29 percent of Exxon’s PNG LNG project and is seeking to expand in the Pacific country near Australia. The partners in the $19 billion Exxon project are considering adding capacity, while Oil Search is also in a venture with Paris-based Total and InterOil Corp. that’s planning the country’s second gas export development.

Oil Search said Monday that it is in a good position to fund the development of its growth projects and to capitalize on a recovery in oil prices. It said it has liquidity of $1.6 billion, including $850 million in cash.

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