First up, this is a letter submitted to The Australian Financial Review on Monday afternoon, which the paper declined to run:

Disclose the Woodside proxies tomorrow

Proxy voting ahead of Friday’s pivotal Woodside Petroleum EGM on the US$2.68 billion Shell buyback proposal closes at noon on Wednesday AEST, 48 hours before the meeting opens.

After the recent experience of trading in Westfield shares ahead of its original May 29 meetings to vote on their market-sensitive restructuring proposal, the ASX and Woodside should heed the lessons and opt for one of the following options: 

  1. Fully disclose the final proxy votes data before trading commences on Thursday; or
  2. Go into a trading halt for all of Thursday and Friday so there is no risk of leaks or speculation on the proxies;

It is true that proxies can be revoked on the day or shareholders can turn up to vote, but it is very rare indeed for a proxy mandate to be reversed at a shareholder meeting.

Therefore, Woodside, Computershare and the ASX should all work hard to disclose this market-sensitive information as soon as it is available, similar to what the Nexus Energy board did ahead of its recent EGM on the proposed 2c-a-share Seven Group takeover which was defeated on both the proxies and the final poll.

Such a move on this reportedly knife-edge Woodside vote would represent a step forward in Australia’s commendable continuous disclosure regime.

Stephen Mayne
Australian Shareholders’ Association

Lo and behold, Woodside Petroleum did precisely that this morning, setting a new precedent for an ASX 100 company when it revealed these audited proxy figures before trading commenced, which showed only 71.3% of directed proxies in favour. With the deal set to be defeated, Woodside shares tumbled 88c or more than 2% to $42 in late-morning trade on the expectation that Shell might seek to dump its full 13.58% stake on the market.

Woodside chairman Michael Chaney could always “do a Westfield” and seek to adjourn tomorrow’s meeting and then strong-arm those who voted “against”, but this is considered highly unlikely because he values his reputation and is starting too far behind.

Based on the numbers releases this morning, this is where the vote currently stands:

Shares on issue: 823.6 million

Shell holding not eligible to vote: 111.85 million

Shares available to vote: 711.7 million

Turnout so far at 59% of eligible votes: 420 million

Eligible shares not votes so far: 291.7 million

What is not yet known is the ASA proxy position and undirected proxies held by the chair, both of which will be voted in favour. Assuming there are 7 million undirected proxies in these two categories (similar to the recent AGM), the voting situation is as follows:

For: 301.6 million or 71.8%

Against: 118.5 million or 28.2%

To get the deal over the high hurdle of a 75% super-majority, Woodside needs an additional 54 million votes in favour or 13.5 million current “against” votes to flip on the day to a “for” vote. This is a very tall ask.

The arguments for and against the deal are spelt out in this ASA Voting Intentions report outlining a vote in favour. Essentially, it is a trade-off decision between the benefits of dispensing of Shell’s negative influence over Woodside with the principle of doing a special tax-effective deal for one shareholder that also gobbles up 31% of Woodside’s accumulated franking credits.

Remarkably, the independent expert Grant Samuel tried to argue these franking credits have no balance sheet value. This is rubbish; it does make sense for low-tax Australian resident shareholders, such as super funds and self-managed super funds, to oppose the deal and instead argue vigorously for an equal access buyback available to all shareholders. Such a buyback funnels franking credits to Australian shareholders but isn’t much use to international shareholders or people like Woodside chairman Michael Chaney or CEO Michael Coleman, who are in the top tax bracket.

Ironically, the key block of votes that have defeated the deal are the American clients of global proxy advisory firm ISS, which recommended against the deal. The other international proxy adviser, Glass Lewis, recommended in favour, but the two locals, Ownership Matters and ACSI, both advised clients to vote against — largely because of the franking credits argument.

Woodside has almost 220,000 shareholders and the turnout tomorrow will be interesting. The average for an ASX 50 company last year was just 5.3%, but Westfield Retail got to 12% and a ferocious proxy solicitation campaign by David Jones achieved a remarkable 31% turnout. I’m tipping about 30,000 Woodside shareholders will vote.

Shell fetched a healthy $3 billion in June when it dumped an additional 9.5% stake in Woodside on the market at $41.35 a share — a skinny discount of just 3.5%. This underwritten offer was 1.8 times over-subscribed so there is plenty of demand for Woodside shares if Shell completes the biggest ever foreign exit from an ASX-listed company through conventional on-market means.