Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

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Equity Bottom-Up

<ul><li>Woodside Petroleum proposes an all scrip merger with Oil Search via scheme of arrangement.</li><li>Oil Search shareholders will receive one Woodside share for every four shares held. The proposal equates to a 14% premium for Oil Search holders based on the immediate pre-announcement share prices of AUD 30.60 for Woodside and AUD 6.75 for Oil Search.</li><li>The theoretical ex-merger price for Woodside would be AUD 29.45, a modest 4% decline on the preannouncement price, ignoring cost savings which would likely be minor.</li><li>Oil Search shareholders would own 32% of the combined entity.</li><li>Our fair values are under review pending a change to our oil price forecasts, but we would expect 10-15% dilution to Woodside's fair value based on prior estimates.</li><li>We don't think this is a particularly good deal for Woodside chiefly because it ignores PNG sovereign risk. This is a better deal for Oil Search shareholders.</li><li>Woodside risks firing its one strong-balance-sheet bullet at a sub-optimal target, worse is if the terms are sweetened, as is possible</li></ul>Analyst: Mark TaylorSector Head: Mathew HodgeFull report below the fold....

Woodside Petroleum proposes an all scrip merger with Oil Search via scheme of arrangement.Oil Search shareholders will receive one Woodside share for every four shares held. The proposal equates to a 14% premium for Oil Search holders based on the immediate pre-announcement share prices of AUD 30.60 for Woodside and AUD 6.75 for Oil Search.The theoretical ex-merger price for Woodside would be AUD 29.45, a modest 4% decline on the preannouncement price, ignoring cost savings which would likely be minor.Oil Search shareholders would own 32% of the combined entity.Our fair values are under review pending a change to our oil price forecasts, but we would expect 10-15% dilution to Woodside's fair value based on prior estimates.We don't think this is a particularly good deal for Woodside chiefly because it ignores PNG sovereign risk. This is a better deal for Oil Search shareholders.Woodside risks firing its one strong-balance-sheet bullet at a sub-optimal target, worse is if the terms are sweetened, as is possibleAnalyst: Mark TaylorSector Head: Mathew HodgeFull report below the fold....

Woodside Puts Merger Proposal to Oil Search, Value Dilutive for Woodside