Weekly Impressions

The key company announcement during the week came from Woodside Petroleum, that it had provided Oil Search a confidential, all scrip, non-binding proposal to merge. I recommend that investors avoid Woodside for four reasons: Mergers & Acquisitions 101 says that acquirers that make all scrip bids perform poorly on average, it is not clear that Woodside can extract synergies from managing Oil Search's assets, integration of the target's assets will further lift Woodside's complexity and agency costs, and analysts continue to downgrade the stock's future growth prospects. In terms of the macro data flow, the sharp drop in consumer sentiment highlights that the elevated level of financial market volatility in recent months has adversely affected the psychology of consumers. Nonetheless, I expect a number of macro tailwinds – including renewed currency depreciation - to support the outlook for bricks ‘n mortar discretionary retail spending. (VIEW LINK)