A man’s reach should not always exceed his grasp. In a little over three years at the helm of the world’s biggest resources company, Marius Kloppers of BHP Billiton has attempted an unlikely trinity of deals: a full merger with Rio Tinto, an iron ore joint venture with the same and a takeover of Canada’s PotashCorp. The last could yet be salvaged. But if the buzzcutted South African still wants to put his cash mountain to use, he should now have a good go at Woodside Petroleum.
Australia’s second-largest oil and gas company by output is vulnerable. Its biggest shareholder, Royal Dutch Shell, has just sold almost a third of its holding to free up funds to invest in its own Australian assets. That this A$3.3bn sale to underwriters at UBS – the largest block trade in Australian corporate history – was arranged without notifying Woodside, suggests that Shell has little interest in holding on to its remaining 24 per cent stake.
Woodside is not expensive: delays and cost overruns on its liquefied natural gas projects have dragged its price/book multiple a third below its five-year average. For BHP, it is an acquisition that would effectively vault its petroleum business into the world’s top 20 listed producers by operating earnings. That would improve the group’s balance. Net profits are currently more than twice as sensitive to iron ore prices as to oil.
Perhaps most important, regulators may be unwilling to kick up a fuss, given BHP’s roots as the Broken Hill Proprietary, named after Australia’s oldest mining town. Besides, the pair has been intertwined before: BHP owned 40 per cent of Woodside until 1990 and is a one-sixth partner in its biggest LNG project. Now that the “for sale” sign has been hoisted, Mr Kloppers should waste little time in declaring an interest.
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