Australian oil and gas producer Santos Ltd. rejected a $10.8 billion takeover offer from private-equity-backed Harbour Energy Ltd. amid rising oil prices.
Santos said in a May 22 news release that the proposal, which Harbour called its "best and final" offer, followed weeks of negotiations on the price and terms of the original offer, announced at the beginning of April. Santos said its independent board members and CEO unanimously agreed to reject the most recent bid because 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."
Harbour had raised its initial bid a number of times, most recently May 21, when the U.S. company offered a deal that valued Santos at US$5.21 per share, an 11% premium to its previous closing price. That offer was dependent on Santos hedging more of its oil-linked production in 2018 and 2019, with room to increase the price even more if Santos agreed to hedge 30% of its oil-linked production in 2020.
"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," Santos said. Harbour is managed by EIG Global Energy Partners.
Harbour's pursuit of the company, which has stakes in two LNG projects in Australia and another in Papua New Guinea, was seen as a product of improving views on the global LNG market. Though talk of oversupply has dominated much of the conversation around LNG trade, analysts and industry experts are beginning to see a shortage emerging in the early to mid-2020s.
Though a number of U.S. LNG exporters tie their prices to Henry Hub, Santos' long-term contracts are oil-linked. Santos noted in the May 22 release that since it first received a proposal from Harbour, Brent oil prices have increased by 14%, with stock prices for other major Australian energy peers growing by an average of 18%. "The Santos business has continued to perform well and is generating strong free cash flow," the company said.
