Which Block: Why the Biggest Trade of the Year Split the Street

Now it was a sale that was transparent and well reported for weeks. The fast-money hedge funds had positioned themselves accordingly by shorting Woodside shares before the sale and expected to cover their position when the shares became available for purchase.

BHP, in turn, appointed JPMorgan to handle the sale of those shares on behalf of foreign holders and the US investment bank wasted no time.

Ahead of the first day of trading for newly merged Woodside Energy entity, JPMorgan marketed the full block of 38 million shares through an open tender.

billion dollar day

This is where things got interesting. Hedge funds bid aggressively in the deal and offers ranged from $28.65 to $30.19 per share.

But a concentrated group of big buyers bundled their deals around $29.15 and that’s where the bulk sale was finally set.

This level was towards the lower end of the offer range, but represented a seemingly impressive discount of 3.4% from the last traded price. This rebate is also the second smallest for a block transaction over $1 billion since 2005.

But the hedge funds were apparently furious because they had received a much thinner stock order than expected.

They had made an aggressive bid above the clearing price, but had been discounted to the point where they had received virtually no shares. All things being equal, a large scaling is a sign of strong demand, which begs the question: why didn’t the price go up if the demand was so strong?

Woodside Energy’s first real-world trading session brought more evidence of strong demand, with shares of Woodside gaining more than 5% in a session when a weak oil price would have otherwise weighed on the stock.

In fact, some believe that the same bidders at $29.15 who made a quick 9% gain, may have bought in large blocks at just under $32 the following day and are now sitting on gains of 20% on the given block investment. the stock price has since traded as high as $34.74.

The implication is that the sale went favorably for a small group of large investors who were able to access a large block of shares at a price that did not reflect true demand.

And while few in the market have sympathy for the hedge funds that have been battered after failing to close their short trades, their willingness to pay a higher price means it is BHP’s foreign shareholders who can feel wronged.

Back of the queue

Hedge funds tend to be at the back of the line when a company, aware of having a stable register of long-term holders, raises funds. But in this case, the counterpart was a group of sellers after the best price.

What would these foreign holders have to say? Well, some who remain BHP shareholders feel that the whole arrangement worked to their detriment in the beginning.

Their cash distribution that they could claim was to be sold on their behalf over an extended period of time and at a price over which they had no control. But it is recognized that the objective was to recover the money, not to make the money.

This meant that even though they were price sensitive, they were treated as price insensitive. And that’s why there’s a sense of unease among some in the market that these disengaged outsiders have lost out to big and important institutions.

JPMorgan declined to comment. But sources close to the bank pointed to the historically tight discount obtained for such a large sale as an indication that these foreign shareholders have done well.

BHP, meanwhile, also seems sufficiently pleased that its overseas shareholders have been treated well. However, the fact that there is such a split on the outcome shows that there is still a blur when it comes to block trades, how they are conducted and how decisions about price and timing are made. allocation are determined.

While stock markets tend to be open and transparent, block trades that involve two-way transactions between a large buyer and a seller are opaque. It’s a function that’s central to the success of brokerage franchises, but also one the regulator has said is watching closely.

The reality is that we will never really know how these block exchanges work and who wins or loses. But it remains one of the last vestiges, in an increasingly disintermediated world, where brokers and their lucrative clients can play their power games.

* The author owns shares of BHP (and now also Woodside).

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