BHP Woodside: locals must watch from a distance

Like many large mining groups, BHP is in the process of moving away from fossil fuels. Thungela, the coal business unbundled from Anglo American in 2021, is an excellent (but perhaps extreme) example of the opportunities this can create.

BHP‘s deal relates to its oil and gas portfolio, which will be combined with the business of Australian energy company Woodside Petroleum. When this transaction is concluded, the merged entity would have a high-margin oil portfolio, long-life LNG assets (Woodside is Australia’s largest natural gas producer) and a strong financial position.

Woodside has issued an explanatory memorandum and notice for a shareholder meeting to vote on the transaction on 19 May. The independent expert report has also become available, concluding that this deal is in the best interests of Woodside shareholders.

BHP believes that the merger is on track for an implementation date of 1 June 2022, assuming all goes well with the shareholder vote and the outstanding regulatory approval.

The deal will see BHP receive newly issued Woodside shares and distribute them to shareholders as an in-specie dividend. Woodside isn’t listed on the JSE, so that’s going to be problematic for small BHP shareholders. The announcement talks about a share sale facility for eligible small BHP shareholders who elect to participate.

Further down the announcement, it notes that local shareholders need to specifically communicate a desire to their CSDP to hold the Woodside shares. This must be communicated by 26 May and would require consideration of exchange control regulations. Those who do not send such a communication (which will be almost everyone I’m sure) will be deemed an “Ineligible Overseas Shareholder” and will be settled in cash as far as I understand it. That doesn’t quite tie up with “electing to participate” in the sale facility, so shareholders must keep a close eye on this to avoid falling foul of any requirements. It certainly makes sense for the default to be a cash payment instead of receiving Woodside shares.

The irritation is that Woodside will seek a listing on the London Stock Exchange (LSE) as part of the deal but not on the JSE. It’s a great pity that the company doesn’t see any value in a JSE listing, as this would allow South African investors to take a view on Woodside. After the clear support for Thungela, it’s clear that there are plenty of investors who are quite happy to invest in fossil fuels.

There’s no guarantee of how the Woodside share price will behave after this deal or whether it will prove to be a lucrative opportunity. It just would have been nice for South African investors to have a chance to participate. Of course, you can always buy the offshore shares in your global portfolio where you would already have taken the money out of the country. This is no different to buying shares in US companies, provided your broker can execute in Australia.