ADNOC-led consortium walks away from $36b Santos takeover
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More news: Santos shares tanked in morning trade after ADNOC's foreign investment arm XRG pulled its proposed takeover of the oil and gas company overnight.
Shares were down 11.1% to $6.80 at 11:20am AEST. The selloff took the wider energy sector down 5.4%.
E&P analysts retained their 'neutral' position on Santos. They said they suspect that XRG "realised that deal completion risk was high given the political commentary that seemed to be growing around the deal".
The analysts noted that Santos' board and management team will come under scrutiny given the deal did not reach the binding stage.
What they said: "There will be speculation that XRG has 'found things' during due diligence," the analysts said.
"Although this is likely, the question is more one of materiality which we are more dubious on. Either way, another failed transaction creates doubt in the market. It's unlikely Santos remains in its current form in time with investors / management looking for alternative ways to create value."
Jarden downgrades Santos as ADNOC-led consortium walks
More news: Jarden has downgraded Santos from 'overweight' to 'underweight' after ADNOC's foreign investment arm XRG pulled its $36 billion takeover of the oil giant overnight.
Jarden analysts, who also cut Santos' target price from $8.40 to $7.05, said they expect share price weakness following the withdrawal of the offer.
Meanwhile, Citi analysts flagged that XRG's "withdrawal creates fresh questions around STO's strategic pathway as this marks the third failed approach since 2018.
The research note said that investors may "increasingly question" whether Santos can attract another interested buyer or if "portfolio rationalisation becomes a possible next step", particularly relating to the Australian domestic market.
What they said: “We expect the market will take time to digest this news and refocus on Santos remaining on the ASX, with shareholders asking management ‘what went wrong?’ and ‘where to from here?’" the Jardens analysts said.
Santos says ADNOC-led consortium would not agree to 'acceptable terms'
More news: Santos has said the ADNOC consortium, which overnight scrapped its $36.4 billion takeover bid for the oil giant, would "not agree to acceptable terms which protected the value of the potential transaction for Santos shareholders".
Santos said that its board advised the consortium on Monday that it expected to enter into an scheme implementation agreement (SIA) at the agreed offer price of USD5.626, if a binding proposal was received from the consortium on acceptable terms on or prior to 19 September.
The consortium consequently notified the Santos board on Wednesday evening of its decision to withdraw its indicative proposal and not proceed with the takeover.
Santos said the consortium would not agree to acceptable terms, or to an appropriate allocation of risk between the consortium and Santos shareholders under the SIA. This included the obligation of the consortium to secure regulatory approvals and the provision of a reasonable commitment to the development and supply of domestic gas.
What they said: “Over the past decade, our disciplined low-cost operating model has driven production costs down, strengthened the portfolio, and delivered strong free cash flow and returns for shareholders,” said Santos chair Keith Spence.
“With production set to rise as Barossa and Pikka phase 1 come online, and unit production cost expected to trend lower over time, our strategy is clear: generate cash, reward shareholders, reinvest to backfill and sustain our infrastructure, and build and grow our production, while continuing to operate safely and reliably.
“Santos has a clear strategy, strong leadership and high-quality growth opportunities across our global portfolio. The board is confident these strengths will deliver long-term value for shareholders.”
ADNOC-led consortium pulls bid, collapsing $36b Santos takeover
The news: Abu Dhabi National Oil Company's (ADNOC’s) international investment arm, XRG, said on Wednesday that a consortium it was leading withdrew an indicative offer to buy Australian gas producer Santos.
The context: In an XRG statement seen by Capital Brief, the consortium, led by XRG alongside Abu Dhabi sovereign fund ADQ and Carlyle, says it will not make a binding offer for Santos.
The news ends a months-long takeover saga which would have seen the investor group pay $36.4 billion in an all-cash offer for Santos. The deal would have been the largest in Australian history, translating to $8.96 a share.
The XRG statement reads: “While the Consortium maintains a positive view of the Santos business, a combination of factors, when considered collectively, have impacted the Consortium’s assessment of its indicative offer.”
“Following a comprehensive evaluation, and taking into account all commercial factors and the terms of the Scheme Implementation Agreement required by the Santos Board, the Consortium has determined that it will not be proceeding with the proposed transaction,” the statement continues.
“While disappointed not to move forward, XRG, and its Consortium partners, are responsible, disciplined investors with a clear focus on creating value for our shareholders and driving long-term growth.
The Consortium extended its appreciation to Santos, all levels of government and other stakeholders for their constructive engagement during the process. “This reinforced our confidence in Australia’s energy and investment environment, as well as the other locations that Santos operates.”
The Consortium was “prepared to undertake new long-term commitments to Australian energy production that would deliver meaningful benefits to domestic gas consumers and enhance regional energy security,” and XRG “remains dedicated to pursuing value accretive opportunities across gas & LNG, chemicals, and energy solutions.”
The update comes two days ahead of a 19 September deadline set by Santos to reach a binding takeover deal at the indicated offer price of $US5.76 per share.
The sources: Reuters, XRG statement, Jarden research, Citi research
