‘Don’t do it’: Woodside investors baulk at Santos tie-up
Several Woodside Energy investors have approached chairman Richard Goyder and senior management to voice concern about the oil and gas producer’s potential $80 billion merger with smaller rival Santos, arguing the tie-up makes no sense.
The investors are pushing back against the potential combination, which both companies confirmed last week was the subject of early discussions but which portfolio managers are struggling to make sense of, even at a zero premium.
Woodside chairman Richard Goyder is thought to have fielded calls from investors concerned about the potential merger. Joe Armao
Yarra Capital Management head of equities Dion Hershan said the firm did not want Woodside to pursue the combination, citing a lack of synergies between the two companies’ portfolios and the existing strength of Woodside’s business since its merger with BHP Petroleum in June last year.
“We are very wary of acquisitions which are for the sake of scale: it gets to a point where a lot of value is destroyed because they are just chasing size,” he said.
“Our view is, Woodside has got a really compelling business, they have growth options, they have a strong balance sheet, they are quality assets, they are already at scale. What is the possible logic to acquire something that would weaken their position, let alone at a premium?”
‘No synergies’
Allan Gray portfolio manager Simon Mawhinney said he had sought talks with Mr Goyder in a bid to understand the company’s appetite for a merger, which he could see no rationale for.
Mr Mawhinney said that while consolidation and a chase for scale were driving mergers and acquisitions in the US oil and gas sector, he did not see that as a good reason to pursue this deal.
“Yes it is all the vogue, and everyone is buying everyone, but that doesn’t mean it creates value, it just creates scale, and in this instance there are no synergies,” he said.
“I’m not expressing any opinion on the relative value of the two companies, but this doesn’t make sense for us.
“I just cannot see this transaction bringing something to the table that isn’t already there for shareholders in Australia and other parts of the world, so it doesn’t pass the litmus test for a good deal.”
Woodside declined to comment.
Woodside’s move to consider further consolidation so quickly after its BHP Petroleum deal initially weighed on the Perth-based producer’s stock price, as some analysts also questioned the logic for a merger. The potential deal under discussion – said to be only 5 per cent advanced – is understood to involve a low-premium all-scrip merger.
Shares in Woodside closed up 1.4 per cent on Friday at $30.58, while Santos jumped 3.2 per cent to $7.75.
Increasing regulatory risk
Santos CEO Kevin Gallagher revealed to staff in an internal video message this week that the approach from Woodside was not the first.
But analysts at E&P Capital said a merger would arguably just increase Australian regulatory risk through the combination of two companies that are facing similar challenges.
“We do wonder why Woodside is considering this merger and what it means for its existing asset base,” E&P said.
Mr Hershan said Santos’ assets were higher cost and had a shorter resource life than Woodside’s, and in inferior locations.
“Even if it was a zero-premium merger, Woodside would be diluting the quality of the portfolio and increasing the cap intensity,” he said.
“We think Woodside standalone has a really compelling business: they are at scale post-BHP and in our opinion they should feel absolutely no compulsion to do anything on the M&A front.”
Meanwhile, Woodside has secured further regulatory approvals from the National Offshore Petroleum Safety and Environmental Management Authority for its $16.5 billion Scarborough project after a delay of several months amid a reworking of requirements for Indigenous consultation due to legal challenges.
The clearances will allow Woodside to start drilling eight planned development wells at the offshore site early next year. It still has one more environment plan, for the critical operations part of Scarborough, before NOPSEMA awaiting approval.
Introducing your Newsfeed
Follow the topics, people and companies that matter to you.
Find out moreRead More
Latest In Energy
Fetching latest articles