A potential merger between BHP and Woodside would be the one of the most expensive for an energy company, particularly as Woodside is the worst-performing energy stock since COVID-19.
It was proposed last week that BHP and Woodside would merge their oil and gas divisions, making it the largest energy company on the ASX and one of the top 10 largest energy companies globally.
While it would mean BHP reduced its carbon emissions, the proportion of Woodside’s emissions would now increase as it held the majority stake in the merged company.
The news follows several commentators forecasting increased merger and acquisition activity in the Australian equities space as firms put excess cash to work.
Since the start of the COVID-19 pandemic in March 2021, Woodside had lost 25% while BHP had risen by 53% over the same period, compared to returns of 21% by the ASX 200.
Looking over a longer time period, BHP had risen 199% over five years to 18 August compared to losses by Woodside of 11.9%.
Jamie Hannah, deputy head of investments and capital markets at VanEck, said: “VanEck believes this deal could benefit BHP considerably more than Woodside. It may be difficult to get a vote across the line, with Woodside shareholders likely to question the value of the merger.
“This deal is one of the most expensive for an energy company and Woodside is one of the worst-performing companies within the energy sector globally post-COVID; the company doesn’t yet have a strong mandate to enter a deal of such questionable value and this could further drag on Woodside’s shares,” Hannah said.
The problem with Woodside, Hannah said, was that it was taking on petroleum assets at a time when the world was moving away from fossil fuels. This was contrary to good environmental, social and governance policies (ESG).
“While many energy companies are selling down their ‘dirty’ energy assets, Woodside is taking them up, contrary to good ESG management.”
