Harbour Energy considers sweetened offer for Santos

Members within the Harbour Energy camp have this week been furiously trying to talk down any suggestions there was any action happening within its quarters. But it appears those close to Harbour could be protesting too much.

The latest reports around the market suggest its bankers at JPMorgan and Highbury Partnership and its legal team remains hard at work on making a sweetened offer for Santos.

One source told DataRoom there had been “huge expectation” within the Adelaide-based company that Harbour was going to return with another offer this week, and the “nothing to see here” rhetoric could be a ploy to drive down the share price and gain back control of the agenda.

The understanding is that Harbour wants to pay about $5.30 a share for the company, but hedge funds are willing to accept only a price of at least $5.60 and institutional investors at least $6.

Its offer in August was worth $9.48 billion or $4.55 a share.

So far, Harbour’s moves to put a floor under the share price have worked: it has fallen since takeover speculation emerged to about $4.90 from $5.15, but last night the shares closed at $4.96.

The jump comes as the oil price remains strong and long-term investors are buying in because they like the company’s fundamentals.

The view is that the share price of Santos will likely find a level around $5 and should Harbour Energy be unable to pay over $5.30 a share, it may be forced to walk away.

If Harbour, which is backed by private equity firm EIG Partners and headed by former Royal Dutch Shell executive director Linda Cook, does return with a bid, it will likely be before Christmas.

Observers say if it is left to the new year, when many key players are away, the bid will lose momentum.

Meanwhile, attempts by investment bank Deutsche to sell Rio Tinto’s Pacific Aluminium business are now believed to be on the backburner as aluminium remains the top-performing base metal of the year.

While the business has not been withdrawn from the market, the sense of urgency is said to be less.

Elsewhere, I-Med yesterday confirmed suggestions in DataRoom its sales process was off and its private equity owners EQT had opted to keep the business. The final parties in the competition were China Merchants, which was said to have been looking for a consortium partner and JMA.

Both parties offered higher prices than private equity firm Permira, which was bidding up to $1.1bn with six times leverage, but the Chinese bidders had not shored up their funding.