Harbour Energy secures Santos bid funds
Santos stalker Harbour Energy is understood to have locked in a new funding arrangement.
Santos stalker Harbour Energy is understood to have locked in a new funding arrangement, raising expectations it is about to lob a revised takeover bid for the $10.6 billion Adelaide-based oil and gas company.
The Weekend Australian understands that lining up to support any revised offer as a lender is investment bank Goldman Sachs, along with JPMorgan, which is providing a major bridging loan.
The Washington DC-based Harbour Energy is backed by the $US17bn ($22bn) EIG Global Energy Partners, the major shareholder in Queensland’s Senex Energy.
It is believed Harbour, led by former Royal Dutch Shell executive Linda Cook, has also obtained what is known in the US as a “highly confident” letter, which enables corporate raiders to launch takeovers without the debt component of their financing package finalised.
The fact that banks have offered certainty they will come up with the funds for a bid suggests another could be on its way despite the Adelaide company maintaining there were no talks occurring with Harbour Energy.
The support from lenders could prove significant, given Santos cited the lack of funding certainty around the offer as a key reason for rejecting an earlier approach.
Any revised bid is said to be about $5.30 a share, which would value the group at $11bn.
It comes amid an environment where mergers and acquisitions globally are at a high and corporate activity in the energy sector is rebounding on the back of a rally in oil prices.
Australia’s listed oil and gas plays have also shown an increased appetite for deals. The Kerry Stokes-backed Beach Energy recently struck a $1.59bn deal to acquire Origin Energy’s Lattice Energy business, while Oil Search has moved to diversify out of PNG through a $520 million deal on interests in Alaska.
Santos received a 13 per cent lift to its share price on Thursday after the company confirmed that it had received a $4.55-a-share non-binding offer from Harbour on August 14, which at the time represented a premium of more than 30 per cent. The shares continued to rally yesterday, closing at a fresh two-year high of $5.01.
Harbour’s interest in Santos could flush out other prospective bidders, with oil above $US60 a barrel offering renewed faith in the sector.
Woodside Petroleum would have little interest in Santos’s assets on the east coast but could be interested in Santos’s stake in the PNG LNG project, given it made an $11.6bn bid for PNG LNG partner Oil Search in 2015.
Santos’s stake in PNG LNG arguably is its most valuable asset. It also owns a stake in the Darwin LNG project, which is a natural destination for gas from the Woodside-led Sunrise gas project, as well as gas assets in Western Australia, the Cooper Basin, NSW and Asia.
One theory is that the appearance of the bid in the press only days after Shell sold down its $3.5bn stake in Woodside could be more than a coincidence, and may suggest Harbour and its advisers were nervous that with Shell no longer on its register, Woodside is eager to play.
Shell, which most recently held 13.3 per cent of the stock, is known to have been averse to takeover aspirations of other targets by Woodside.
Exposing the bid and driving up the shares is also seen as a way to gain price discovery for Harbour Energy, with analysts now placing fresh price targets on the business.
RBC analysts — who are on a site visit to Santos’s Queensland gas operations — said the stock was worth $4 based on the bank’s long-term oil price assumptions.
The widely held view is that, despite its recent rally, Santos would settle at about $4.50 with a bid between $5 and $6 needed for any buyer to land control.
Another potentially interested party is French oil giant Total, which is Santos’s partner in the Gladstone LNG project and would be a logical buyer of the company, while major Chinese shareholder Hony Capital and ENN, which already controls 15 per cent of Santos, is not to be discounted.
Capital controls from China are not thought to be a barrier. The main focus for the group would be to gain Foreign Investment Review Board approval.
Adding strength to the theory is that access to the data room would not be seen as critical for such parties, given their existing knowledge of Santos and its assets.
While many observers believe Santos took the right approach to reject the $9.48bn offer in August, some investors have been unhappy about the group’s decision not to disclose the offer to the market at the time. The bid in August represented a reasonable premium, but the stock has since gained 22 per cent amid a broader rally in the oil and gas sector.
As the oil price recovers and Santos shares climb, the group’s debt position will also improve, as it continues to shake off its disastrous 2015 chapter when it was caught out by the dramatic slump in oil. The fall came just as Santos was carrying its peak debt load, and it had to embark on a $2.5bn equity raising to relieve the pressure on its balance sheet.
South Australian Premier Jay Weatherill has indicated he is prepared to play hardball over any takeover of Santos, which is the biggest Adelaide-grown company still in the state. Mr Weatherill is expected to use any takeover to negotiate for local job security and to improve his political influence.
One theory is that Santos — advised by Deutsche, John Wylie and JB North & Co — may be forced to embark on a break-up of the company should a strong takeover play come forward in a defensive move, given its parts could be worth more than the whole.
Weighing on any possible Santos buyer is the prospect of the government’s looming crackdown on gas exports from GLNG.
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