Woodside Petroleum's (WPL) largest investor Shell is poised to offload the majority of its 23.1% stake in the group, through two separate transactions totalling $6.1 billion.
The deal has been anticipated in financial markets for several years as Shell trims back its global holdings to focus on projects with high returns.
The transaction includes a share buyback and a sale to institutional investors. Shell last sold a stake in Woodside in 2010.
Woodside chief executive Peter Coleman said the combined transaction would deliver value to shareholders through enhanced earnings per share, cash flow and dividends.
"It allows us to optimise the company’s near-term capital structure, while maintaining the capacity to continue to develop existing projects and make additional investments in new growth opportunities," he said.
"The combined transaction will also increase our liquidity in the market and resolve the uncertainty in relation to Shell’s shareholding that has existed for several years."
Woodside said it has signed a binding buyback agreement with Shell to purchase 78.3 million of its own shares at a price of $36.49 per share, for a sale value of $2.86bn.
This is a 14% discount to the volume weighted average price of Woodside shares over the five trading days up to and including yesterday.
The value of the buyback was given by Woodside as $US2.68 billion.
Shell will also sell another 78.3 million Woodside shares through an underwritten sell-down to institutional investors at $41.35 per share. This sale would be worth $3.24bn, based on calculations by Business Spectator.
Each transaction represents 9.5% of Woodside's total issued share capital, for a total of 19%.
Woodside shares were placed in a trading halt this morning to accommodate the sales.
After the transactions, Shell's holding in Woodside will be a maximum of 4.5%.
The buyback is subject to Woodside shareholder approval, an independent expert providing an opinion that the transaction is fair and reasonable and consent under a number of Woodside’s facility agreements.
The Woodside board recommended shareholders vote in favour of the selective buyback, subject to the independent expert report.The group noted that the two directors originally nominated by Shell abstained from voting on the matter.
The proposed selective buyback will be funded through a combination of Woodside's existing cash and debt facilities and the group expects it will not impact its credit rating.
Woodside said it plans to continue its practice of an 80% dividend payout ratio for the foreseeable future.