Woodside Shareholders Lose to Shell

Summary:  Woodside plans to use $US2,680 million of shareholders' funds to buy-back 78.3 million shares from Shell. Most of the payment ($US2,058 million) is a fully franked dividend which carries $US882 million in franking credits. Woodside shareholders (other than Shell) get nothing. Only one shareholder wins, Shell. The rest lose. These amounts could be used to pay a big special dividend to all shareholders.

Woodside calculates the benefit from the transaction is a US12 cent increase in annual dividends. The $US2,680 million would pay a special dividend of $US3.25. $US2.50 if only the $US2,058 million dividend component was used.

Key Relevance: This is a bad deal for everyone except Shell. The cost to Australian shareholders is $A48.50 which is 14.3% above the market price, not a 14% discount to market price. The franking credits have been ignored in the costing, but not by Shell. Australian shareholders would be much better off with a fully franked dividend of $US2.50 ($A2.66) per share, or $US3.25 ($A3.47) per share, to all shareholders.

Franking Credits Increased Returns by 58%

Summary:  Franking credits have increased total investment returns by 58% since their introduction on 1 July 1987. Investment income in 2013 (dividends + franking credits) was 96% higher than would have been the case without franking credits.

Key Relevance: Eliminating franking credits would significantly reduce investment income (between 24% and 49%).