BHP no Shrinking Violet…

Given the company’s history of paying trivial dividends, unrest amongst investors has risen. An inability to benefit from the company’s recent success is a  contributing factor.
To silence the masses BHP recently finalised a further round of share buybacks. This meant offering to re-purchase shares from investors for an attractive return – $6 billion to be precise. The structure of the offer was attractive for shareholders on low tax rates and retirees without a tax rate all together. But it also benefited those that chose to hold their shares. The buyback resulted in less shares on the market, which in turn positively impacts earnings per share, cash flow per share and return on equity.
But it now seems BHP is ready to make their next big move. Speculation is rife in the marketplace that they are preparing a takeover bid for Australia’s premier oil and gas producer, Woodside Petroleum (WPL). It’s widely believed the combination of assets would be a match made in heaven and one that would benefit shareholders on both sides of the fence.
BHP’s blue chip assets include petroleum, alumina, copper, gold, iron ore, coking coal, energy coal, nickel, and diamonds. But it lacks the exposure to oil and gas that Woodside provides.
One hurdle to such a takeover lies with Woodside’s major 24.3% shareholder, Shell. For the deal to be done Shell would have to surrender their holding to BHP. Strong rumours suggest that Shell are demanding BHP sell them some A grade assets before Shell will relinquish their holding.
WPL has steadily risen around 15% recently on the back of takeover speculation. It currently trades at around $47, but one would have to assume an offer price closer to $60 is required to get the deal done. Long term holders of WPL will be in no mood to hand over their cherished shares cheaply.
Watch this space…