Woodside to Acquire Shares in BHP

Last week, corporate actions took centre stage again and I suspect we will see more mergers and acquisitions in the coming year. This time it is BHP and Woodside who announced late on Tuesday that they had entered into an agreement to merge their respective oil and gas portfolios with an all-stock merger.

Woodside and BHP to develop new products and energy solutions

According to the agreement, Woodside or a wholly owned subsidiary of Woodside will acquire 100 per cent of the issued share capital of BHP Petroleum International Pty Ltd in exchange for shares in Woodside. For BHP shareholders, this means they will receive shares in Woodside with 48 per cent of Woodside owned by BHP shareholders. The good news is that Woodside will remain listed on the ASX and, interestingly, they are also considering listing on additional exchanges similar to BHP, which is listed both in Australia and the UK as BHP Group Plc.

I believe this is a good deal, as it not only strengthens both companies but allows them to move into other areas over the next decade and beyond. What is particularly exciting is that the combined businesses will have a focus on building and maintaining a high return and carbon-resilient portfolio, which is critical given the issues with global warming.

The merger aims to include natural gas and new energy technologies in their portfolio, which is expected to generate significant cash flow to support the development of new energy products and low carbon solutions including hydrogen, ammonia and carbon capture, and storage. This in itself should be a heads up to investors to look at some of the companies in this space that BHP and Woodside would have their eye one, with a view to owning them before things really heat up in this space.

What were the best and worst performing sectors last week?

The best performing sectors included Consumer Staples up 2.96 per cent followed by Communication Services up 2.81 per cent and Healthcare up 2.23 per cent. The worst performing sectors included Materials down 9.58 per cent followed by Energy down 7.79 per cent and Financials down 2.58 per cent.

The best performers in the ASX/S&P top 100 stocks included Domino’s Pizza up 11.05 per cent followed by Carsales.com up 10.71 per cent while The a2 Milk Company was up 9.40 per cent, on speculation it was a possible takeover target. The worst performing stocks included Lynas Rare Earths down 18.22 per cent, followed by Mineral Resources down 17.02 per cent and BHP Group down 16.04 per cent.

What's next for the Australian share market?

In recent times, I have said that the market has developed a mind of its own and that we need to be prepared for anything, and last week proved just that. After two weeks of solid gains in which the All Ordinaries Index rose over 230 points or 3 per cent in price, much of the gain has been eroded last week with the market down around 197 points or 2.19 per cent.

While the market has been bullish of late, I have been mindful that we still haven’t experienced a significant down move since March of last year when we experienced the COVID meltdown. So while the market is still technically bullish, we need to consider whether this might be what is occurring now.

While this is a possibility, as it is typical for lows to occur in our market in either September, October or November, it is also possible that this week is simply a minor pullback and that the market will turn to push towards 8,000 points and beyond over the next few weeks before falling into a low in the coming months.

That said, we need confirmation that a down move is unfolding, which we are yet to see, so now is not the time to make rash decisions but to prepare yourself for what may occur. Given this, I urge investors to use stop losses to protect capital and profits.

For now, good luck and good trading.

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online.