Smart money doubts BHP Billiton set to bid for Woodside

By Sonali Paul

MELBOURNE (Reuters) – Shareholders are playing down speculation that top global miner BHP Billiton (BHP.AX: Quote, Profile, Research) is lining up a bid for Australian oil and gas producer Woodside Petroleum (WPL.AX: Quote, Profile, Research), saying at least in the near term it made little sense.

The biggest clue that BHP is not close to any deal is that it has not suspended its off-market share buyback, with the tender for shares due to close on April 8.

In previous cases, BHP has suspended share buybacks ahead of announcing a deal, such as in late 2007 before it approached Rio Tinto (RIO.L: Quote, Profile, Research) with a takeover offer. Australian company rules require it to disclose all material information ahead of a buyback.

Nevertheless, a week of solid Aussie dollar buying by a UK bank stoked rumors that BHP (BLT.L: Quote, Profile, Research) was getting set to buy Royal Dutch Shell’s (RDSa.L: Quote, Profile, Research) 24 percent stake in Woodside ahead of launching a full takeover.

Media chatter that Woodside had appointed Credit Suisse and Grant Samuel as advisers added to the fuel that sent Woodside’s shares up 6 percent over the past week in heavy volume, to give it a market capitalization of A$37 billion.

Responding to a query from the Australian Securities Exchange, Woodside said on Wednesday it was not aware of information that would account for its surge and though it noted the takeover speculation, it does not comment on rumors.

BHP and Credit Suisse declined to comment, and bankers at Grant Samuel were not immediately available to comment.

Woodside’s shares fell 2 percent to A$46.80 on Thursday after Citi said a takeover was unlikely and cut its rating on the stock to “sell.”

“In our view, a takeover is unlikely, and Woodside is expensive based on its current assets and planned growth,” Citi analyst Mark Greenwood said in a note.

BETTER OPPORTUNITIES

Talk of a BHP bid picked up steam last November when Shell sold a third of its stake in Woodside and said it would be willing to sell the remaining 24 percent. BHP has plenty of cash to put to work after enjoying a boom in commodity prices and failing in its $39 billion bid for Canada’s Potash Corp (POT.TO: Quote, Profile, Research).

But now would be the wrong time to pounce, with Woodside’s shares propped up by soaring oil prices and the prospects of increased demand for LNG in the wake of Japan’s nuclear crisis.

BHP Chief Executive Marius Kloppers and Chief Financial Officer Alex Vanselow both said in February that high commodity prices were making potential takeover targets too pricey, so BHP wanted to focus on its $80 billion pipeline of projects.

“Bidding for things at the top of the market would be quite inconsistent with a number of comments they made at the time of the last result,” said Peter Chilton, an analyst at Constellation Capital Management, which owns BHP shares.

The takeover rumor gained currency because Woodside is seen as an obvious target for BHP. Oil and gas is one of the few areas where BHP could make a major acquisition without running into competition concerns, after it was blocked on three major deals in metals and mining over the past three years.

BHP is seen as the only company that could make a bid for Australia’s top independent oil and gas producer because any foreign player would run into national interest concerns, as Shell did with a bid for Woodside in 2001.

“The rumor surfaces regularly. Is there any more smoke on this one? I don’t see any reason why there should be,” said Tim Barker, portfolio manager at BT Investment Management, which owns BHP shares.

Woodside is seen as a good fit, as BHP already has a small stake in Woodside’s main asset, the North West Shelf Gas venture in Western Australia, is a partner in its Browse Basin project and has other gas assets that mesh with Woodside’s liquefied natural gas (LNG) growth plans.

On the other side of the coin, there is little need for BHP to expand in those assets, with its foot already in the door.

Other factors working against a BHP bid for Woodside include political and tax uncertainty in Australia. Proposed mining and carbon taxes are adding to project costs in Australia, where BHP already has large iron ore and coal interests.

Investors said it would make more sense for BHP to look at cheaper targets outside Australia, along the lines of its $4.75 billion purchase of shale gas reserves from Chesapeake Energy Corp (CHK.N: Quote, Profile, Research) in February.

“My point would be that there are some other acquisitions they could do in the energy space that would be more accretive,” said James Bruce, portfolio manager at Perpetual Investments.

(Additional reporting by Michael Smith and James Regan in SYDNEY and Rebekah Kebede in PERTH; Editing by Lincoln Feast)

Smart money doubts BHP Billiton set to bid for Woodside