Woodside bins Oil Search bid

Woodside Petroleum has decided against the $11.6 billion merger with Papua New Guinea oil and gas giant Oil Search, sending the latter’s share prices plummeting to a 7 year-low.

Both companies’ shares nosedived on Tuesday following an announcement made against a backdrop of falling oil prices.

Woodside’s shares fell more than 4 percent to a seven-year low, but held up better than other energy producers on a day when oil prices hit their lowest since February 2009.

Alphinity Investment Management portfolio manager Stephane Andre said dropping the Oil Search plan and staying “disciplined” in its takeover strategy was the right way to go for Woodside.

“Given the fall-off in crude pricing, it’s hard to see Woodside raising the offer in this environment”, the Bloomberg quoted Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co., as saying.

Woodside released a formal statement on Tuesday, in which it confirmed that “it has informed the Oil Search Board that it has withdrawn its proposal to merge the businesses”. “I think buyers, like investors, are trying to time the bottom of the market, and the latest data would say there is still another six to 12 months of oversupply to come”, he said. The deal offers the two midtier producers, already closely linked by existing partnerships, scale and a strengthened balance sheet.

Oil Search rejected the initial 11.6 billion Australian dollar (8.41 billion US dollar) all-script takeover offer – one Woodside share for four Oil Search shares – in September, claiming it grossly undervalued the company.

Woodside Chief Executive Peter Coleman had previously said its offer for Oil Search was fair and fully priced. “This signals that Woodside isn’t confident that we’re quite there yet”.

Woodside chairman Michael Chaney formally notified Oil Search the company was dropping its merger proposal, according to sources.

“The Oil Search board concluded that the indicative Woodside proposal grossly undervalued the company”, the Papua New Guinea-focused company said in a statement.