DataRoom AM: Woodside’s worries

Woodside Petroleum may soon put pen to paper for the colossal Leviathan gas fields, but a major investor, Royal Dutch Shell, is looking for the exit.

Reports that Woodside Petroleum could walk away from the massive Leviathan gas field opportunity appear to have been premature, with the oil and gas group seen as close to finalising a deal. It won’t come cheap, however. The company is also at the centre of a possible mammoth block trade, with major shareholder Royal Dutch Shell seen finally ready to exit.

Elsewhere, Forge Group has enjoyed a busy festive season, the fight for Warrnambool Cheese & Butter enters 2014 with no conclusion in sight, Telstra Corporation makes a major Asian divestment and the IPO market gets some good news.

Woodside Petroleum, Royal Dutch Shell

Woodside Petroleum may again be closing in on a deal to claim a 30 per cent stake in the mammoth Leviathan gas field off the coast of Israel.

Around a year ago Woodside signed a memorandum of understanding with JV partners Delek Group, Ratio Oil Exploration and Noble Energy to buy 30 per cent of the asset for as much as $US2.3 billion. Since then a final deal has been slowed as Woodside waited on confirmation of Israel’s gas export policy and the Leviathan partners sought more cash from Woodside to recognise the increased reserves.

In December, Woodside chief executive Peter Coleman hinted the Australian company would be willing to walk away from the deal but, according to Israeli news service Globes, Woodside is now just weeks away from signing a revised agreement.

Yitzhak Tshuva, the controlling shareholder of Delek, reportedly told a closed company conference in late December that a deal was "very close to being signed.”

A source told Globes that a final agreement would be worked out before the end of the month with the Australian firm seen likely to pay an additional few hundred million dollars to claim a slice of the project.

Delek has since issued a statement to confirm negotiations are continuing but stopped short of hinting a deal was imminent.

Previous reports had suggested Woodside may be required to pay 30 per cent more than its original offer, which would see a total deal value of around $US3 billion.

The project is currently expected to cost around $US8 billion to develop, with first production likely in 2017.

Meanwhile, the long awaited block trade of Royal Dutch Shell’s shareholding in Woodside is rumoured to be close.

The oil and gas major’s $7.4 billion, 23.1 per cent stake in Woodside, could be up for grabs in a matter of weeks, according to The Australian.

Shell has reportedly been shopping the shareholding around to large sovereign wealth funds in the Middle East and Asia over recent months.

The stake is the remnants of its failed takeover bid for Woodside in 2001, which was blocked by then treasurer Peter Costello.

Shell offloaded around 10 per cent back in 2010, with strong rumours of an imminent exit ever since. It has, however, been patient with its shareholding.

Shell would no doubt have been watching the successful block trades in Fortescue Metals Group, Aurizon and Australand last year with interest and has every reason to believe there will be plenty of interest in its Woodside stake. The main issue is the size, with a $7.4 billion shareholding not easy to get rid of easily.

An update from the company on divestment plans is expected on January 30, The Australian said.

Telstra Corporation

Telstra Corporation signed a $US2.4 billion agreement to offload its Hong Kong-based mobiles business, CSL, to HKT Limited in late December.

Telstra, which is awaiting regulatory approval for the sale, said the deal would see it reap around $2 billion for its 76.4 per cent shareholding in CSL.

Telstra chief executive David Thodey told shareholders there were a “number of dynamics” in the Hong Kong market that made the time right to sell the growing business.

The news is the latest development in its Asian businesses, following just over a month after it announced plans to list Chinese car sales website Autohome on the New York Stock Exchange.

The float, which saw Telstra’s shareholding diluted to 66 per cent, was well received by the market when it hit boards on December 11.

Telstra’s investment is now worth $2 billion, around 20 times what it paid for its stake.

The stock of Autohome not only listed at the top end of the indicative range but has since more than doubled.

Saputo, Warrnambool Cheese and Butter

As expected the takeover battle for Warrnambool Cheese & Butter has dragged into the new year.

With WCB shareholders distracted by the festive season, Saputo is thought likely to have only lifted its stake in the firm to around 18 per cent, similar to the levels of Bega Cheese and Murray Goulburn.

The Canadian dairy firm’s offer ceases this Friday, though another extension is considered likely as it seeks to convince Bega and Kirin Holdings to sell their 18.8 and 10 per cent stakes.

WCB isn’t the only dairy asset reportedly up for grabs, with rumours in December swirling around the prospect of Italy’s Parmalat buying WA-based Harvey Fresh and speculation Kirin Holdings may be looking for a joint venture partner for its Australian dairy operations.

The latest talk surrounds the privately run United Dairy Power, with Chinese buyers reportedly circling the Victorian-based group. Manassen Foods, which is now owned by China’s Bright Food Group, is considered a frontrunner.

Forge Resources, BlackRock Group

Forge Group was the subject of significant investor interest late last month as it announced it had received the go-ahead for the $1.47 billion engineering, procurement and construction contract of the processing facility at Gina Rinehart’s $10 billion Roy Hill iron ore project.

The value of the contract to Forge is over $800 million, though there was more to the share price rise than progress at Roy Hill.

Last week, it was announced that world leading asset manager BlackRock Inc had claimed a significant shareholding in the ASX-listed Forge.

The US-based BlackRock now holds 5.32 per cent of the Australian group, which has seen a yo-yo in its share price of late thanks to an over 50 per cent surge recently and an around 80 per cent drop in November.

Overall, the company’s stock is still well down on its levels of the start of November of $4.18, finishing trade last week at a comparatively disappointing $1.42.

IPO market, privatisations

The IPO market, which appeared to be on the cusp of a boom in November, limped into the new year, though the last notable float of the year did at least provide cause for optimism.

Asian-focussed e-commerce business iBuy climbed 4.5 per cent on its first day of trade just prior to Christmas, bucking the recent trend of weak first days by more highly touted companies including Nine Entertainment and Dick Smith Holdings.

The company raised $37 million through its listing and its relative success – it remains 1.5 per cent above its listing price – is another sign that online businesses appear the best bet in the current market (healthcare, too, has fared well).

The positive reception of iBuy comes on the back of the remarkable buying pressure seen in the initial trading days for online business Freelancer and OzForex.

Still, the signs for the IPO market remain mixed heading into the new year.

One of the biggest floats on the agenda is likely to be the privatisation of Medibank Private, even if it won’t be forthcoming until at least the December quarter.

A scoping study into a sale of the asset is currently underway at the behest of the federal government and it has the backing of ACCC boss Rod Sims, who told The Australian Financial Review that state ownership of assets largely represented a productivity drain.

“Government ownership versus private ownership massively affects the incentives people have to drive productivity change,” he told the paper.

Come the budget in May we should know the government’s plans for the multi-billion divestment of the health insurer.

Wrapping up

Westpac Banking Corporation has finalised its takeover of Lloyds’ Australian assets. The $1.45 billion buy was the ‘big four’ member’s largest since the colossal purchase of St George in 2008.

Elsewhere, Leighton Holdings has claimed full control of its Indian operations. The company bought out Leighton Welspun joint venture partner Welspun Group at the end of December. The ASX-listed group paid $99 million to acquire Welspun’s 39.9 per cent stake in the JV set-up in 2010.

Finally, Goodman Fielder has announced the divestment of its Australian biscuit business. Green’s Food Holdings picked up the division, which includes the Paradise and Cottage brands, for $17 million. The transaction is expected to close next month.

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