BHP Isn’t Justifying Woodside’s Most Expensive Value: Real M&A
April 12, 2011, 11:02 PM EDTBy Brad Merchant, James Paton and Rita Nazareth
April 13 (Bloomberg) -- Any takeover of Woodside Petroleum Ltd., a laggard in an industry that has made it the subject of merger speculation, would be most expensive.
That may help explain why BHP Billiton Ltd. said this week there’s no basis for reports it would offer about $48 billion for Woodside, Australia’s second-largest oil and gas producer. The Perth-based company is valued at $33.19 per barrel of its equivalent oil reserves, higher than comparable producers with market capitalizations of $20 billion to $50 billion, according to data compiled by Bloomberg including net debt. Woodside also commands the most expensive valuation based on earnings before interest, taxes, depreciation and amortization, the data show.
While optimism that BHP would make a bid boosted Woodside’s market value by $4.6 billion in the past month, Chief Executive Officer Don Voelte hasn’t delivered gains matching oil’s 26 percent rise in the last year. With analysts projecting Woodside’s profit growth will be flat this year, any buyer instead may be betting on higher demand for Woodside’s natural- gas projects following Japan’s nuclear crisis.
“Woodside is expensive,” said Tim Schroeders, a Melbourne-based manager at Pengana Capital Ltd., which oversees about A$1 billion ($1 billion). “The most likely scenario is that BHP is not going to bid.”
Laura Hammer, a spokeswoman for Woodside, and Melbourne- based BHP’s Fiona Martin declined to comment.
‘Not Aware’
BHP, the world’s largest mining company, said in an April 11 statement that it was “not aware of any basis for the market speculation” linking it to Woodside. Voelte told reporters in Perth he had no knowledge of any potential takeover by BHP.
The Sunday Times reported on April 10 that BHP was in talks to buy Royal Dutch Shell Plc’s 24 percent stake in Woodside and make a A$46 billion takeover bid. BHP would swap some of Woodside’s assets, including the Sunrise natural-gas field, for The Hague-based Shell’s holding, the newspaper said, citing people it didn’t identify.
Kim Blomley, a spokesman for Shell, declined to comment.
Speculation that BHP, which has a market value of $261 billion, would make a bid for Woodside increased after BHP’s Chief Executive Officer Marius Kloppers, 48, said in February that takeovers were on his agenda even after pledging to spend $80 billion on BHP’s own projects.
Woodside has $43.4 billion in equity and net debt, according to data compiled by Bloomberg. With proven reserves of about 1.31 billion barrels, the company is valued at $33.19 per barrel, data compiled by Bloomberg show.
Relative Value
That’s at least 44 percent higher than Woodside’s most comparable companies based on equity value and the proportion of oil assets: Oklahoma City-based Devon Energy Corp., Anadarko Petroleum Corp. of The Woodlands, Texas, Apache Corp. in Houston and Calgary-based Talisman Energy Inc., the data show.
Devon has a value of $13.74 a barrel of oil, while Apache’s level is $18.99. Woodside’s multiple of 13.4 times Ebitda for the past 12 months is also the most expensive, the data show.
While Woodside commands the highest valuation, investors aren’t getting rewarded with the fastest profit growth.
Adjusted earnings will be unchanged at $2.04 a share in 2011, according to analysts’ estimates compiled by Bloomberg. Devon will lift profit by 8 percent this year, the slowest rate of increase of Woodside’s four competitors, the data show.
Share Performance
Woodside’s stock has also underperformed, declining 2 percent in local currency terms and advancing 11 percent in U.S. dollars during the past year, data compiled by Bloomberg show. Oil and gas producers in the Standard & Poor’s 500 Index have gained 25 percent on average, while the MSCI World Energy Index of 114 companies added 17 percent.
Woodside would still be an attractive target for BHP or another energy company because of a “huge growth pipeline” of its proposed Pluto, Browse and Sunrise liquefied natural gas ventures, along with its business ties to Japan, according to Xavier Grunauer, an analyst at Nomura Holdings Inc.
“The bull case for taking over Woodside is fairly straightforward,” he said in an interview from Perth. Oil is likely to stay “high, and it’s more likely people will add LNG to the mix” after the nuclear crisis in Japan, he said.
Crude oil reached a 30-month high of $112.79 a barrel on the New York Mercantile Exchange on April 8. That capped a 34 percent rally since anti-government protests began on Feb. 15 in Libya, cutting output in Africa’s third-largest producer.
Japan Crisis
Global demand for LNG, or natural gas that has been chilled to liquid form, is projected to more than double within 25 years to 360 million tons annually, Australian Energy Minister Martin Ferguson said in Perth on April 11.
Japan, which depends on imported fuel for most of its needs, may seek alternatives to nuclear power after an earthquake and tsunami last month damaged Tokyo Electric Power Co.’s Fukushima Dai-Ichi plant. The crisis will spur demand for LNG “over both the short and longer term,” Ferguson said.
Woodside’s 2010 LNG production was 2.55 million metric tons. It may increase to as much as 20 million tons a year by 2020, according to slides released last year.
Any potential acquirer of Woodside, particularly a foreign company, may face opposition from regulators or government officials. Western Australia Premier Colin Barnett said this week he would oppose a deal, a decade after the nation blocked Shell’s attempt to take control of Woodside.
“Woodside must remain an independent, Australian-owned, Perth-headquartered petroleum company,” Barnett told delegates at a conference. “If Woodside were taken over by a major international company, you would lose that Australian face.”
‘Love to Buy’
Australian Treasurer Wayne Swan earlier this month blocked Singapore Exchange Ltd.’s bid for Sydney-based ASX Ltd., the operator of Australia’s stock bourse, saying the deal was not in his nation’s interest.
Opposition from regulators and investors has led BHP to abandon bids for Potash Corp. of Saskatchewan Inc. and London- based Rio Tinto Group, as well as a planned iron-ore venture with Rio.
“The number of acquirers would definitely be limited” for Woodside, said Kevin Shacknofsky, who helps manage $7 billion in Purchase, New York, for Alpine Mutual Funds. “The Chinese would love to buy it. There are political issues.”
“You’ve got this huge growth potential. Obviously, on today’s production and their reserves it’s expensive.”
Overall, there have been 6,860 deals announced globally this year, totaling $693.3 billion, a 31 percent increase from the $530.5 billion in the same period in 2010, according to data compiled by Bloomberg.
--With assistance from Sarah Rabil and Tara Lachapelle in New York, Brett Foley, Eduard Gismatullin and Will Kennedy in London and Elisabeth Behrmann and John Viljoen in Sydney. Editors: Michael Tsang, Daniel Hauck.
To contact the reporters on this story Brad Merchant in London at bmerchant3@bloomberg.net; James Paton in Sydney at jpaton4@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net.
To contact the editors responsible for this story: Daniel Hauck at dhauck1@bloomberg.net; Katherine Snyder at ksnyder@bloomberg.net; Andrew Hobbs at ahobbs4@bloomberg.net.
