Woodside rejects Shell's offer as 'inadequate'

Woodside Petroleum Ltd.'s independent directors Tuesday rejected as 'inadequate' a sweetened offer by an Australian unit of the Royal Dutch/Shell Group to gain 56% controlling interest in that company, up from the 34.3% it now holds. They said the offer 'does not contain an adequate premium for transfer of control of the company to Shell.'


Woodside Petroleum Ltd.'s independent directors Tuesday rejected as "inadequate" a sweetened offer by an Australian unit of the Royal Dutch/Shell Group to gain 56% controlling interest in that company, up from the 34.3% it now holds.

Shell Australia Investments Ltd. late last week made a cash offer of $14.80/share (Aus.), plus a call option for one share of Woodside stock, exercisable at the same price if Shell�s separate merger proposal is approved by Woodside shareholders.

That offer "provides the best of both worlds to Woodside shareholders," said Raoul Restucci, Shell's exploration and production director for the Asia-Pacific region.

"Not only can shareholders realize immediate value through the cash offer, but they also have the opportunity to buy back their shares at the same price if the merger proposal is approved, thereby preserving the opportunity to benefit from the value created by the merger proposal," he said.

Shell is trying to gain control of the company to ensure that a meeting of Woodside shareholders is convened to consider Shell's revised merger proposal. Shell would not be allowed to vote its Woodside stock at that meeting.

The revised proposal involves swapping a significant parcel of Shell properties, valued in the range of $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 (OGJ Online, July 18, 2000). That figure represents the discount to Woodside of the fair market value of the Shell properties as determined by a third-party expert, officials said.

"The proposed merger will give Woodside the size, scale, and operational reach it needs to become the premier listed oil and gas company in Australia and the Asia-Pacific region," said Peter Duncan, chairman of Shell companies in Australia, in a written announcement Friday.

"The cash offer price is final and will not be increased," Restucci said. "We are offering a price that is above the top end of the experts' valuation of $11.87-14.07/share (Aus.)" for Woodside stock.

Moreover, he said, �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."

However, Woodside's independent directors, who considered the offer in the absence of the Shell-nominated directors, said Tuesday it "does not contain an adequate premium for transfer of control of the company to Shell." They said they would provide Woodside shareholders "with detailed recommendations shortly."

In their written statement, the independent directors said, "Woodside has seen considerable success during the year � with several new oil and gas discoveries, progress with new projects in the North West Shelf and the Timor Sea, and a significant improvement in the company's financial position. Shell's revised proposal to sell assets to Woodside in return for a large placement of Woodside stock will require careful analysis to determine whether the value of Woodside is fully recognized." They promised "to ensure that this analysis is undertaken."

The proposal, "or a negotiated modification of it," will likely be presented to Woodside shareholders at a general meeting "in the March-June period of next year," the independent directors said.

If the merger takes place, Shell also plans to establish a technical services company in Perth to provide exploration and development support services for Shell operating companies in the Asia-Pacific region.

Shell wants to cash in on development of Australia�s gas resources and the expected strong demand growth for LNG in the Asia-Pacific region.

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