Santos merger talks with Woodside scrapped

The scrapping of merger talks involving SA’s biggest company, Santos, has averted a multimillion-dollar blow to SA. CEO Kevin Gallagher has told why discussions were called off.

Merger talks between the state’s largest company, Santos, and the much-larger Woodside Energy have been scrapped, averting a substantial blow to the state economy.

Woodside on Wednesday morning announced it had “ceased discussions regarding a potential merger with Santos”.

This stops the potential loss of more than $100m annually from South Australia’s economy, assuming the merged firm’s headquarters would have been in Perth.

Premier Peter Malinauskas said the merger could have compromised a big corporate employer in South Australia, hailed the announcement as “news that the government very much welcomes”.

Santos and Woodside in December confirmed they were in early talks to create an $80bn merged global oil and gas giant, as fossil fuel producers bulk up as part of a wave of consolidation across the country.

Kevin Gallagher, the Santos CEO and managing director.

Energy Minister Tom Koutsantonis had vowed to use all of his “regulatory powers to protect South Australian jobs”, insisting Woodside would face “serious discussions” with the state government if it wanted to merge Santos or relocate any resources from the SA.

In a note to staff, Santos managing director and chief executive officer Kevin Gallagher said he had emphasised since talks were announced in December that there was “no certainty a transaction would occur”.

“Following an initial exchange of information over the last several weeks, sufficient combination benefits were not identified to support a merger that would be in the best interests of Santos shareholders,” Mr Gallagher said.

“As I said on Monday, Santos has a very strong future as an independent entity, our base business is strong and our strategy has significant upside over and above where the company is currently trading.

“I am very confident our strategy to backfill and sustain our infrastructure, decarbonise our operations and develop the low-carbon fuels the world needs, is the right strategy at the right time.”

Woodside CEO Meg O’Neill on Wednesday morning said the company conducted thorough due diligence for every opportunity it pursued and would pursue transactions only that were “value accretive” for shareholders.

“We continue to be disciplined in our approach to mergers and acquisitions and capital management to create and deliver value for shareholders. While the discussions with Santos did not result in a transaction, Woodside considers that the global LNG sector provides significant potential for value creation.

“Woodside’s world-class global portfolio, growth pipeline and strong balance sheet underpin our attractive investment proposition for Australian and global investors.”

In a statement to the Australian Stock Exchange, Santos said benefits to support a merger in the interests of shareholders had not been identified.

“Santos refers to the ASX announcement released by Woodside Energy Group (Woodside) today confirming discussions between Santos and Woodside regarding a potential merger have ceased,” Santos said.

“Following an initial exchange of information, sufficient combination benefits were not identified to support a merger that would be in the best interests of Santos shareholders.

“Santos has a clear strategy to deliver long-term shareholder value. We have a strong balance sheet and continue to review options to unlock value for shareholders.”

Mr Malinauskas called Woodside’s announcement “a great result for South Australia”.

“Woodside is a big Australian company, their investment in South Australia is always welcome but not at the expense of Santos,” he said.

“Santos is an important part of our state. They are a significant investor, a major employer.

“We were concerned that a takeover or a merger by Woodside would compromise the presence of a big corporate employer in South Australia and, now that that risk isn’t there, it’s news that the government very much welcomes.”