Woodside tilts takeover balance

Woodside Petroleum’s ambitious play for Oil Search is a rare example of a Perth-based company being the bidder in a big takeover, judging by Business News’ analysis of completed M&A deals over the past two decades.

Since 1998, more than 20 Western Australian companies have been involved in completed takeover deals worth upwards of $1 billion.

In only a handful of cases, however, was the WA company the bidder.

The more common pattern has been for successful WA companies to be bought by interstate or international suitors.

Alinta, Multiplex, Jubilee Mines, Bankwest and (recently) iiNet are just some of the WA businesses that have been taken over (see table).

Woodside’s proposed $11.6 billion bid for Oil Search will help to tip back the balance.

It is surpassed in size only by Wesfarmers’ $20 billion takeover of Coles Group in 2007.

That remains the largest completed takeover deal in Australian corporate history.

Four other Perth companies – or, at least, one-time Perth companies – have completed $1 billion-plus takeovers.

West Australian Newspapers Holdings paid $4.1 billion for Seven Media Group in 2011, as part of a complex restructuring of Kerry Stokes’ business interests.

WAN subsequently morphed into Sydney-based Seven West Media.

Alinta had a lead role in several major M&A deals between 2003 and 2006, when Bob Browning led the company, though most involved complex asset and equity swaps.

In terms of straight takeovers, its biggest deal was the $1.7 billion purchase of Duke Energy’s east coast assets.

Alinta itself has subsequently changed hands, initially in 2007 when Babcock & Brown outgunned Macquarie Bank in a hotly contested takeover battle, and again in 2011 when private equity investors led by TPG Capital gained control through a debt-for-equity swap.

Other Perth companies to have completed $1 billion takeovers are Equinox Minerals (which was subsequently taken over by Barrick Gold) and Paladin Energy.

Diversified miner Independence Group is on the brink of joining this group, with its $1.8 billion acquisition of Sirius Resources close to completion.

All major stakeholders supported the Independence-Sirius deal from the outset.

Woodside, by contrast, has a lot of convincing to do if it is to succeed in its Oil Search takeover.

Its scrip takeover offer has been pitched at a thin premium to Oil Search’s prevailing share price.

In a bid to attract support, Woodside has highlighted its strong dividend payments, which would provide a boost for Oil Search shareholders if they accepted the proposed offer.

Woodside will need to win the support of the PNG government, which has a shareholding in Oil Search and a direct stake in its flagship PNG LNG project.

Chief executive Peter Coleman is hoping to win support by promoting Woodside as a ‘regional champion’.

“Our proposal will create the regional oil and gas champion for Papua New Guinea and Australia with a global portfolio of world-class assets and development opportunities,” Mr Coleman said.

He said Woodside was also committed to continuing Oil Search’s project work and community development in PNG.

“Woodside looks forward to sitting down with Oil Search to discuss this proposal, which we believe delivers significant benefits to all stakeholders,” Mr Coleman told Business News.

Woodside will have a particular interest in Oil Search’s two growth projects – an extra production train at the PNG LNG project and development of the Papua LNG project.

Both are relatively low-cost projects and would give Woodside more growth options.

The Oil Search proposal came soon after Woodside completed the $US2.75 billion ($3.9 billion) purchase of Apache Corp’s major LNG assets, including a stake in Chevron’s Wheatstone project at Onslow.

Value creation

Looking back at the big takeover deals in WA, a couple of themes emerge.

One is the enormous value that has been created by the state’s geologists and miners.

People such as Kerry Harmanis (Jubilee Mines), Nick Giorgetta (Equigold), and Mark Bennett and Mark Creasy (Sirius Resources) built highly attractive ventures off the back of their exploration and development success.

The other trend is the loss of management and board influence in Perth, with many WA businesses now controlled elsewhere; even if, like Bankwest, they have retained a head office here.

That’s why the creation of South32 as a Perth-headquartered company has provided a useful fillip for the local business community.

It’s interesting to note that older takeover deals are worth a lot more in today’s dollars, after adjusting for inflation.

In 1998, for instance, US-backed company Epic Energy caused great surprise when it paid the state government $2.4 billion for the Dampier to Bunbury natural gas pipeline.

In today’s dollars, that would be $3.8 billion. Epic ended up going into receivership because it was unable to service its debts, allowing the DUET consortium to buy the pipeline for $1.86 billion six years later.

Apart from the pipeline sale, the state’s next biggest privatisation was Bankwest, which was sold to Bank of Scotland for $900 million in 1995 – and subsequently sold 49 per cent to the public and listed on the stock market.

In today’s dollars, that is $1.47 billion, and compares to the $2.1 billion Commonwealth Bank paid for Bankwest in 2008.