Woodside Petroleum is facing mounting pressure to instigate a share buyback for all investors as shareholders shun a $US2.68 billion ($2.86 billion) plan that would offer only Royal Dutch Shell access to franking credits.
In the latest show of institutional investor muscle, proxy voting by Woodside shareholders signalled that the planned selective buyback of shares from Shell is doomed to failure.
Just weeks after investors in Westfield Retail Trust threatened to derail a $70 billion restructuring, several large superfunds have joined with some fringe investors to torpedo the buyback plan.
While the resolution could yet be voted through at a shareholder meeting in Perth on Friday, the proxy voting is seen as a strong message to management that the interests of long-term investors need to be taken into account.
"We don't see the point in there being preferential treatment for other shareholders on specific deals," said Bill Hartnett at Local Government Super, which has tens of millions of dollars invested in Woodside and which voted against the buyback. "It's all about equal access to franking credits that are valuable for superfunds. We want the board to consider long-term shareholders in the decision, who are going to be there afterwards as well."
The selective buyback would allow Shell, which already sold a 9.5 per cent stake in Woodside to investors in June, to reduce its stake to less than 5 per cent in line with its strategy of shedding non-strategic investments.
Woodside chairman Michael Chaney and chief executive Peter Coleman have argued the selective buyback would increase earnings and dividends per share, and allow Woodside to become fully independent from Shell.
But several shareholders and proxy advisers have criticised the proposal for violating a basic tenet of good corporate governance: that all shareholders holding the same class of shares are treated equally.
Lower tax-paying shareholders such as superfunds are also loath to see Shell, which wants to exit the Woodside register, get access to a chunk of Woodside's almost $US3 billion pile of franking credits while they will not.
The results of the proxies revealed by Woodside on Thursday indicate that proposal is likely to be blocked.
In what may be seen as an embarrassment for Mr Chaney, some 28.7 per cent of eligible proxy and direct votes cast so far are against the buyback proposal, which requires a 75 per cent majority to go ahead. About 59 per cent of those entitled to vote have done so.
On Thursday, Mr Chaney said it was too early to talk of a defeat of the buyback proposal or of a "plan B" until the final outcome of the meeting was known.
"Time will tell, we'll see," he said.
Woodside shares fell as much as 2.2 per cent to $41.96 on the news, but recovered to $42.52, down 0.8 per cent. The stock had closed at its highest for more than three years on Wednesday.
A Woodside spokeswoman would not comment on whether the company planned to make a last-ditch attempt on Thursday to persuade investors to back the proposal, but confirmed the meeting would take place as planned.
Mr Hartnett said he had not been contacted by Woodside on Thursday. Analysts said that while passing the resolution on Friday was not impossible, the proxy votes made that unlikely.
"On my numbers, if you assume a 75 per cent turnout, which I think is reasonable, then you only need 11 per cent of the votes yet to be cast to block it to then see the deal fall over," said Adrian Wood, of Macquarie Equities.
"If it does indeed get voted down, that's a very clear statement from shareholders that they see value in those franking credits and therefore there will be huge pressure on management to distribute them equally across the shareholders. If it's good enough for Shell, it has to be good enough for the rest of the investor base."
But UBS cautioned that the scale of any equal access buyback may be different to the Shell proposal, while Shell's full participation could lead to the buyback being scaled back for other investors.
It would also leave Shell still with an interest in Woodside of more than 10 per cent, yet clearly not a long-term holder, which could weigh on the stock, UBS analyst Nik Burns said.
Mr Hartnett said he still wanted to see Woodside address the Shell overhang issue, but in a way that treated all shareholders equally.
"This sort of reaction from investors, it's a bit similar to what we saw with Westfield last month," he said. "Again long-term shareholders such as superfunds are very supportive of companies but we have a principle of wanting to be treated equally with other shareholders."
Shell cannot vote on the buyback plan.
