Woodside Petroleum Limited's (ASX: WPL) first attempt to acquire Oil Search Limited (ASX: OSH) fell flat, but it seems the energy giant isn't done yet.
According to reports from The Australian Financial Review, Woodside is looking to raise between $2 billion and $3 billion in debt to bolster its offer and entice Oil Search's owners to deal.
Based on Woodside's initial offer of 0.25 of its shares for each share of Oil Search (valuing Oil Search at $11.6 billion, or $7.65 per share), this initiative could add between $1.32 and $1.98 per share to the offer price. In other words, Oil Search could be offered up to $9.63 per share which would represent a 28.6% premium to their closing price on Friday ($7.49), and a 43% premium to Oil Search's closing price before the initial offer was made ($6.73).
Indeed, such a high offer may be necessary after Oil Search labelled the initial approach as "highly opportunistic" which "grossly (undervalued) the company". At the time, it said "the Board has undertaken substantial shareholder engagement. The overwhelming feedback has been that this Proposal has little merit", suggesting an offer around the $10 mark may be necessary to succeed.
As it stands, Woodside's growth prospects are somewhat more limited than those of Oil Search making the acquisition appealing. It is made even more attractive by the low oil prices which have acted as a heavy drag on Oil Search's shares over the last 15 months or so.
Oil Search's shares fell 0.5% after the market opened on Monday, dragged down by a 3.3% fall in the price of oil, while Woodside Petroleum tumbled 2.8%. Considering the headwinds facing the industry, Woodside needs to be careful so as to not overpay for the business, and that is something investors will need to be mindful of.
