Woodside explains rejection of Shell�s offer

In the detailed explanation previously promised, Woodside Petroleum Ltd.�s independent directors reiterated Wednesday that a sweetened $2.5 billion offer by the Royal Dutch/Shell Group for 56% controlling interest of the Australian firm is inadequate.

In late November, the directors rejected Shell�s cash offer of $14.80/share (Aus.), plus a call option for one share of Woodside stock, exercisable at the same price if shareholders approved Shell�s separate merger proposal. At that time, they promised to provide their shareholders �with detailed recommendations shortly.� (OGJ Online, Nov. 28, 2000)

The Woodside independent directors subsequently hired an outside expert, Deloitte Corporate Finance Pty Ltd., which used three different valuation methods to assess Shell�s offer.

Based on that evaluation, Shell�s offer �is neither fair nor reasonable;� does not provide �an adequate premium;� and does not �fully reflect the growth initiatives of Woodside,� they said in a written statement.

�The independent expert has assessed the fair market value of Woodside to be $16-$18/share,� said John Akehurst, the company�s managing director.

�This range compares with Shell�s offer of $14.80/share and a conditional call option which the independent expert has valued at 20�-42�. The independent expert has concluded that the offer is neither fair nor reasonable,� he said.

Akehurst also cited three unspecified recent takeovers in Australia�s resource sector, in which the average premiums were reportedly in the range of 53-101%, �measured 1 day and 2 months, respectively, before the bids.�

He said, �Shell�s takeover premium for Woodside, when measured against the same criteria, ranges from just 4% to only 10%.�

Moreover, Deloitte officials estimated the average premium for takeover bids among global oil and gas companies to be 48% above the share price a month before the bid. The average premium offered in cash bids greater than $2 billion (US) for large companies was 43%, officials said.

In cases where the bidding company already owned more than 20% of the takeover target, officials figured the average premium at 19% over the share price a month before the bid and 26% above the share price 2 months before. Shell now has 34.3% interest in Woodside.

�The premium being offered to shareholders by Shell falls well short of these benchmarks,� said Akehurst.

When Shell sweetened its offer in November, Raoul Restucci, exploration and production director for the Asia-Pacific region, said the proposed price �is above the top end of the experts' valuation of $11.87-14.07/share (Aus.)" for Woodside stock.

Moreover, he said then, �The offer is being made at a time of volatile and high oil prices�not at a time of depressed market conditions. The offer is also made at a time when the Woodside share price has been buoyed by considerable speculation in relation to a revised merger proposal from us."

Shell�s revised proposal also included a swap of a substantial parcel of Shell properties, valued at $6.3-7.3 billion (Aus.), for 333.3 million new shares of Woodside stock. That portfolio of properties includes Shell's interests in the North West Shelf project, Laminaria-Corallina, Greater Gorgon and other selected Australian holdings, along with 20% interest in its Brutus deepwater development project in the Gulf of Mexico.

The revised offer would more than double to $2.5 billion the direct value transferred to Woodside through that deal, up from $1.2 billion under the previous offer, Shell officials said. It is their final offer for Woodside, they said at the time.

But that proposed transfer of properties was not included in Woodside�s assessment of the offer. The company lacks sufficient information about some of those assets to make a recommendation at this time, Akehurst said.

However, he promised that the offered properties �will be rigorously assessed to ensure that the value for all shareholders is properly understood before a recommendation is put to shareholders at a general meeting between March and June next year,� he said.

Meanwhile, the independent directors pointed out that Shell would reap the benefit of a proposed yearend dividend of 60�/share if other shareholders accepted its offer for their stock. They claimed the sale of stock could have adverse tax consequences for shareholders, too.

Woodside has the asset base, financial capability and the people �to deliver substantial growth over the next decade,� said Akehurst. The company has one of the lowest finding costs in the world, averaging 51�/bbl of oil equivalent since 1998.

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