The win for Woodside can be found in the way it failed, in its first attempt to acquire the US-based Energy Partners Ltd (EPL).
That defeat, which Slugcatcher suspects might one day be seen as a temporary setback, came last November when Woodside ended its proposed $US23 a share bid for EPL.
The target company, a New Orleans oil and gas producer with interests in 38 producing Gulf of Mexico fields, had vigorously resisted Woodside’s takeover proposal, threatening legal action and rolling out a plan it called a “strategic alternatives process” – a procedure with the rather unfortunate acronym of SAP.
As far as Slugcatcher can see, this SAP-process really involved looking for a higher bid, in some form or another, perhaps as a joint venture or some other alliance.
Whatever EPL management had in mind, it is fair to say that nothing happened in the weeks (and now months) since Woodside officially walked away on November 17.
In fact, all that appears to have happened since then is that EPL has said it is persevering with SAP, telling the New York Stock Exchange on January 12 that it remains “committed to the process and is in discussions with interested parties”.
And Woodside blandly noted in its fourth quarter report on January 18 that its tender offer for EPL, via a US-subsidiary, did not proceed.
So what now? EPL is still looking and Woodside is silent – perhaps for a good reason as can be seen through the prism of market events.
When Woodside launched its $23 bid on August 28, EPL shares were trading around $18.40. The proposed price, which could have been lifted to $24 under certain circumstances, was pitched at a 25% premium.
On the same day Woodside bid, its shares were trading at $A42.30.
Since bid day, there has been a major event in the oil world. The price has crashed – not slipped or eased, but plummetted, from around $US70 a barrel to trade today around $52.50 – a fall of precisely 25% in just five months.
With the oil price crash has gone Woodside’s share price, which is now around $A36.50 – down 13.7%.
But in defiance of the oil price, EPL continues to trade around $US21.92 – less than 5% below Woodside’s proposed takeover bid.
Different interpretations can be placed on these events, but this is how Slugcatcher sees it.
EPL is flopping about, looking for a bid to beat Woodside’s $23. It is doing everything other than stick a sign outside the front door saying “for sale”.
Speculators, sniffing a bidding duel, are underpinning the EPL share price. Woodside is sitting on the sidelines, displaying public indifference.
The question now is one of time. EPL wants to create a bidding war, but can hardly expect anyone to offer more (or even match) the $23 that was on the table since the oil price has fallen 25%.
Woodside will be assessing what happens, either waiting for a rival to be beaten out of the bushes, or waiting until EPL says a few more times that it is persevering with its strategic alternative process – and then re-enter with a second offer, at a discount.
The price last August of $23 looks far too high in the current market – just as EPL’s share price looks like it’s being propped up by speculators, an investment class with very a short attention span.
It’s the fall in the oil price, and widespread decline in asset values which makes Woodside’s first-round defeat with EPL a good battle to have lost.
It’s what happens next in this war of wills which might deliver victory from the jaws of defeat.
