20/07/2021 - 12:30

Santos seeks $22bn Oil Search merger

20/07/2021 - 12:30

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Oil Search has rejected a Santos merger bid valuing the joint entity at $22 billion, revealed one day after Oil Search’s chief executive resigned.

Santos seeks $22bn Oil Search merger
Santos boss Kevin Gallagher. Photo: Attila Csaszar.

Oil Search has rejected a Santos merger bid valuing the joint entity at $22 billion, revealed one day after the company’s chief executive resigned.

Santos lobbed the proposal in late June, with Oil Search swiftly rebuking the offer.

The proposal would mean Oil Search shareholders receive 0.589 Santos shares for each Oil Search share they own.

That would leave Oil Search’s owners with 37 per cent of the new merged entity, and value their shares at $4.25, Santos said.

Both Santos and Oil Search hold equity stakes in PNG LNG, which is operated by Exxon Mobil.

Santos holds 13.5 per cent of the 8 million tonne per annum operation, while Oil Search owns 29 per cent.

In a statement to markets, Santos said it had received a letter from Oil Search noting the proposal did not offer appropriate value, and that it has subsequently sought to engage on a transaction rationale.

Later in the day, Oil Search said it was open to a move from Santos but the deal needed to be fair, with a premium of 6.8 per cent considered too low.

But the company is open to a revised proposal.

With a $22 billion market capitalisation, the new entity would be in the ASX20 and one of the world’s top 20 oil and gas companies, Santos said.

It would also be slightly larger than Perth-based Woodside, where Santos chief executive Kevin Gallagher had been rumoured a starter in the race to replace Peter Coleman.

Woodside had also made an acquisition approach to Oil Search in 2015, a deal which was declined.

Santos touted the deal as creating a business with a strong balance sheet and growth opportunities.

“The combination would create greater alignment in Papua New Guinea supporting the development of key projects including Papua LNG, deliver new jobs and help support the local economy,” the company's ASX release said.

Citigroup, JB North & Co, Herbert Smith Freehills and Dentons advised Santos while Oil Search’s advisers are Goldman Sachs, Macquarie Capital and Allens.

Oil Search’s statement said former managing director Kieran Wulff, who resigned yesterday, had not participated in evaluating the transaction.

Dr Wulff’s resignation followed the deterioration of a long term medical condition, Oil Search said.

But the board also noted it had been in discussions with Dr Wulff after recent complaints about his behaviour; and behaved in a standard inconsistent with the expectations of the board in his management style.

He had held the roles since February 2020.

Shares in Oil Search had lifted 5.7 per cent today to $3.88 each at the time of writing, while Santos units were changing hands at $6.56, down 4 per cent.

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