Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
BHP’s huge merger
The Woodside Petroleum Limited (ASX: WPL) share price will be under the spotlight after announcing a merger with the oil business of BHP Group Ltd (ASX: BHP).
Mega merger between BHP oil and Woodside
As confirmed in BHP’s FY21 result, Woodside is going to merge with BHP’s oil business.
BHP has been thinking about divesting its oil business for some time, but now it’s officially happening.
The merger of these two businesses will create a global top ten independent energy company in production terms of the LNG industry.
On completion of the deal, Woodside will issue new shares to be distributed to BHP shareholders. The enlarged Woodside business would be owned 52 per cent by existing Woodside shareholders and 48 per cent by existing BHP shareholders.
It’s not a done deal yet though. Confirmatory due diligence, shareholder approval, regulatory approval and so on still need to occur.
What are the benefits of the deal?
Both businesses believe that substantial value creation can occur for both sets of shareholders across a range of areas. Woodside listed a number of expected benefits.
It will deliver greater scale and diversity of geographies, products and customers with its portfolio of assets.
The combined business is expected to be resilient, with high-margin operating cashflows which can fund shareholder returns and the business evolution to support the energy transition.
Woodside’s enlarged business will have a strong growth profile with a plan to achieve a final investment decision (FID) for its Scarborough asset in the 2021 calendar year and achieve capacity to “phase the most competitive, high-return options within the portfolio”.
This larger business will have proven and strong technical capability from both companies.
There are potential estimated synergies of more than US$400 million ($555 million) per year from optimising corporate processes and systems, leveraging combined capabilities and improving capital efficiency on future growth projects and exploration.
The final point that Woodside pointed to was greater financial resilience, compared to the individual businesses being separate.
Summary thoughts on Woodside, the share price and this deal
This deal looks like it makes a lot of sense for both businesses. Woodside will benefit from being a larger business, whilst BHP gets to exit one of the fossil fuel segments that many investors wanted it to divest.
But Woodside is looking to be greener too. It wants to reduce net emissions by 15 per cent and 30 per cent by 2025 and 2030, respectively. Woodside has an ambition to be net-zero by 2050. It is applying these targets to the combined portfolio.
The combined business will focus on building and maintaining a high return and carbon-resilient portfolio which includes natural gas and new energy technologies and low carbon solutions including hydrogen, ammonia and carbon capture and storage (CCS).
I have very little exposure to commodities in my portfolio. It looks like a good deal for both sets of shareholders, but I’m not personally looking to jump into buying shares of either business. There are other ASX dividend shares I would rather look at.
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