Woodside holders reject $2.7 bn buyback plan with Shell

8/1/2014

Woodside holders reject $2.7 bn buyback plan with Shell

JAMES PATON

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

Woodside investors cast 72% of their votes in support of the buyback, short of the 75% needed, according to a company statement after a shareholder meeting in Perth. The stock fell 1.9% to A$41.71. The benchmark index declined 1.5%.

The rejection spoils part of Shell’s plan to raise $5 billion by trimming most of what was a 23% stake in Australia’s second-biggest oil and gas company. Speculation that The Hague-based energy giant would sell its remaining holding has weighed on Woodside’s share price.

“The overhang is a tangible cap on Woodside’s share price performance,” Andrew Williams, a Melbourne-based analyst at RBC Capital Markets, said on August 1 by phone before the shareholder meeting. “It doesn’t look as though there’s a Plan B.”

Woodside, which faced investor concerns that Shell was getting preferential treatment, may opt to offer a buyback to all shareholders, according to Macquarie Group Ltd. That may still leave Shell’s stake at about 11%, UBS AG said.

Shell holds about 13.5% of Woodside, according to data compiled by Bloomberg. Shell in June sold 78.3 million shares to investors at A$41.35 each, about a 3.5% discount to Woodside’s June 16 closing price, the day before the buyback was stated.

Capital Position

Woodside will review its capital position, Chairman Michael Chaney said on August 1 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 wrote in a report last month.

Shell said on July 31 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, CFO Simon Henry reiterated on an earnings conference call.

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