This morning WA-based oil and gas giant Woodside Petroleum Limited (ASX: WPL) announced a takeover bid for Papua New Guinea-based LNG producer Oil Search Limited (ASX: OSH).
Under the terms of Woodside's proposal Oil Search shareholders would receive one Woodside share for every four Oil Search shares held in an all scrip bid.
Given that Woodside currently has a market value around $25 billion, versus $10.2 billion for Oil Search this looks an opportunistic bid from a Woodside management team looking to pick up beaten-down energy assets on the cheap.
In response to the proposal Oil Search has inferred that it believes it is currently undervalued given its equity holding in the flagship PNG LNG project, reserves upside and plenty of other exploration acreage mean it has substantial scope for valuation growth if the oil price rebounds over the medium term.
Oil Search then added shareholders are entitled to an offer that adequately reflects this potential value and I expect Woodside will have a tough task persuading the Oil Search board and shareholders to accept the offer.
More likely is that Woodside will be forced to come back with an improved offer perhaps including a cash component.
This looks a story likely to run and the recent oil price crash is an excellent example of why smart investors should be fully prepared in how to act when markets crash.
