Morgans downgrades Santos on 'surprising' early backing of Adnoc takeover
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The news: Morgans has downgraded its rating on Santos, saying the oil giant's early endorsement of Adnoc's $30 billion takeover proposal is "surprising" and "highly unusual" in LNG mergers and acquisitions.
The numbers: Morgans downgraded Santos from 'hold' to 'trim' and retained its target price of $6.90. Santos shares last closed at $7.74.
The context: Morgans analyst Adrian Prendergast said most company boards delay recommendations on offers to try and extract an additional premium and invite competing bids.
In this case, he noted, Santos' board has given up valuation leverage, as it cannot now credibly seek improved deal terms. It has also deterred potential rival bidders.
What they said: "This either signals the board sees little scope for a higher valuation on closer inspection of its assets or it is prioritising speed and certainty over price," said Prendergast.
"In either case, it sends a clear message that the Santos board does not expect meaningful value to emerge above the $8.89 offer."
The source: Morgans research
