Santos shares will fall heavily today when ASX trading resumes after the company rejected the $A14.5 billion final offer from would be suitor, Harbour Energy.
Santos’s rejection of the $US5.21 a share offer (around $A6.95) will force the rejected suitor to either go hostile or withdraw.
Going hostile won’t succeed (even though Harbour has the support of two Chinese shareholders who speak for around 15% of Santos) because the bid needs the approval of the South Australian government and the lifting of the 15% shareholding cap on the company, as well as FIRB approval.
A thumbs up for Harbour from the new South Australian government is unlikely for political reasons. FIRB just doesn’t approve hostile bids.
The Santos decision to the higher offer from Harbour, received on Monday, was announced just after 7pm Sydney on Tuesday.
Santos shares rose 1.2% (in a market that was down all day and ended off 0.6%) at $A6.44, well under the $A6.95 price from Harbour.
The view from investors was that the 4.6% rise in the offer price was not good enough, and that’s what transpired on Tuesday evening.
“After careful consideration of all aspects of the Final Proposal, the Santos independent directors and Managing Director & CEO have unanimously resolved to reject the Final Proposal on the basis that it does not represent a full value of the company and, when combined with the associated risks, is not in the best interests of Santos shareholders, “Santos directors said in the offer.
“Accordingly, Santos has now terminated all discussions with Harbour Energy,” the statement concluded. Santos clearly didn’t like the still conditional nature of what Harbour said was its “best and final” price, or the fact that Santos shareholders would have to wear the impact of any currency moves in the US dollar priced offer.
“The Final Proposal was a highly leveraged private equity-backed structure that, prior to implementation, would have required Santos to provide significant support for Harbour’s debt raising and to hedge a significant proportion of oil-linked production.
“In addition, the Final Proposal was stated to be subject to various conditions, including FIRB approval and restrictions on the conduct of Santos’ business from the time of entering into the Scheme Implementation Deed until implementation.
“Following extensive due diligence, the Final Proposal price was increased by 4.6 per cent to US$5.21 per share from the price of US$4.98 per share in the Indicative Proposal.
"The consideration would be in US dollars and Santos shareholders would be subject to fluctuations in the AUD/USD exchange rate, with no adjustment if the US dollar depreciated against the Australian dollar.
"Since receipt of the Indicative Proposal, Brent oil prices have increased by 14 per cent and the share prices of other major ASX-listed energy peers by an average of 18 per cent. The Santos business has continued to perform well and is generating strong free cash flow,” Santos said.
