What the BHP and Woodside merger will mean for shareholders

This week, corporate actions have taken 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.

According to the agreement, Woodside or a wholly-owned subsidiary of Woodside, will acquire 100% 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% 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 on, with a view to owning them before things really heat up in this space.

The best and worst performing sectors this week

The best performing sectors include Communication Services and Healthcare, which are both up more than 2% followed by Consumer Staples up more than 1%. The worst performing sectors include Materials down more than 8% followed by Energy down more than 7% and Financials down more than 2%.

The best performers in the ASX/S&P top 100 stocks include The a2 Milk Company, Domino's Pizza and Carsales.com, which are all up more than 10%. The worst-performing stocks include BHP, which is down more than 15% despite this week's announcement followed by Mineral Resources down more than 14% while Magellan Financial and Lynas Rare Earths are both down more than 12%

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 this week proved just that.

After two weeks of solid gains in which the All Ordinaries Index rose over 230 points or 3% in price, much of the gain has been eroded this week with the market down around 190 points or approximately 2%.

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 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 8000 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.

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