Shares in BHP Group Ltd (ASX: BHP) inched higher on Friday amid reports that the company has got the green light for its planned merger with Woodside Petroleum Limited (ASX: WPL).
Today BHP released an update noting the findings of an independent expert's report, with the auditor – KPMG in this case – concluding the deal is in the best interests of shareholders.
"BHP and Woodside Petroleum entered into a share sale agreement (SSA) for the merger of BHP's oil and gas portfolio with Woodside by an all-stock merger on 22 November 2021," the release noted today.
"Woodside has also released the Independent Expert's Report prepared for Woodside shareholders, which has concluded that the Merger is in the best interests of Woodside shareholders, in the absence of a superior proposal".
Fair is fair
Independent third-party KPMG commented on its findings and was satisfied the merger valued Woodside at a fair price range.
"We have assessed the full underlying value of Woodside as a standalone entity to be in the range of US$16,978 million to US$19,424 million, which equates to an assessed value per Woodside share of between A$23.09 and A$26.429," it remarked.
"We have also considered that based on our assessment of the full underlying value of Woodside and BHP Petroleum as standalone entities, the aggregate 52% interest that Woodside Shareholders will hold in the Merged Group is broadly consistent with Woodside's contribution to the Merged Group," the report went on to say.
"Based on these measures, the Proposed Transaction is, in our opinion, fair to Woodside Shareholders."
BHP explains that the merger is on track and is set for completion on 1 June, contingent on approval from Woodside shareholders.
As a part of the merger, the newly-formed entity will gain access to additional markets, potentially adding further liquidity and investment interest.
"Woodside will retain its primary listing on the ASX and is seeking a standard listing on the LSE and a sponsored Level III ADR program on the NYSE from completion of the Merger," BHP commented.
"A share sale facility will be in place for eligible small BHP shareholders who elect to participate, and for shareholders who are ineligible to receive Woodside Shares."
Synergies are paramount
Providing the merger goes ahead unscathed, both players would synergise costs and revenue streams to the tune of $400 million per annum.
In the effort to build a high margin oil portfolio, long life LNG assets, and the financial health to withstand the energy 'transition', value is clear to see when scrutinising the deal – on paper.
"The case for the proposed merger is compelling, bringing together the best of both organisations to create a global independent energy company with the scale, diversity and resilience to create value for shareholders and increased ability to navigate the energy transition," Woodside commented.
"It will provide the financial strength to fund planned developments in the near term and investment in new energy opportunities and the Woodside Board strongly expects it to support shareholder returns through the cycle."
The Woodside Board considers that the Merged Group will have a portfolio of complementary, high-margin oil and long-life conventional gas assets in predominantly OECD countries, expected to generate the financial strength and resilience to help Woodside to supply the energy needed for global growth and development through the energy transition.
One contentious issue surrounding the merger is how each company intends to meet its climate reduction targets and retain commitments to net zero emissions by 2050.
That's seen both companies cop a grilling from shareholders and activists alike, particularly with the approval of Woodside's Scarborough project in WA.
This week Woodside confirmed it has all the necessary licensing and permits to go ahead with the controversial project.
"Woodside has been under intense criticism from environmental advocates as it pushes ahead with its $16.4 billion Scarborough project, which is set to be the biggest fossil fuel development in Australia for almost a decade," The Australian Financial Review reports.
"[Meantime] the [merger] documents issued to shareholders show BHP Petroleum has rehabilitation obligations of US$3.7 billion ($4.95 billion) as of December 31 – a figure that would fall to Woodside."
"BHP's rehabilitation obligations have been inflated as it struggles to sell its Bass Strait assets."
It remains to be seen if any hurdles will get in the way before the completion date in June. In the meanwhile, BHP shares have spiked 23% this year to date whereas Woodside is up 43%.
