Major Oil Search investors mull $21bn merger deal with Santos
Major Oil Search shareholders are casting doubt over the merits of Santos’ $21bn merger proposal
Major Oil Search shareholders are reconsidering Santos’ $21bn merger proposal as a surge in liquefied natural gas and oil prices and more favourable prospects in Papua New Guinea test the merits of the deal.
The two companies have signed a merger agreement, with Santos controlling 61.5 per cent of the beefed-up producer to Oil Search’s 38.5 per cent, a sweetener to the previous 63-37 per cent ratio rejected by Oil Search’s board.
But with the deal requiring the approval of at least 75 per cent of shareholders at the November 29 meeting, there is growing talk that several institutional Oil Search shareholders still harbour concerns over the tie-up and whether the company is being handed over too cheaply to an energy rival.
A jump in spot Asian LNG prices beyond $US30 per million British thermal units and oil trading at three-year highs has contributed to the rethink along with Oil Search’s exposure to an expansion in PNG that is seen as one of the most lucrative projects should it be brought online later this decade.
Several investors have canvassed the possibility of former Oil Search chief executive Peter Botten returning to the company as chairman, replacing Rick Lee, should the company vote down the merger proposal and remain an independent entity.
Oil Search shareholder Allan Gray, which owns nearly 5 per cent of the company’s stock, said it had yet to be convinced by the transaction.
“We weren’t that keen on the combination at the outset, and with some of the developments that have happened subsequent to the deal being announced, they have made us even less keen on this transaction,” Allan Gray managing director Simon Mawhinney said. “We are not partial to this combination on these terms.”
Securing the 75 per cent vote might not be straightforward given several large institutional investors were yet to be convinced of the merger, sources told The Australian.
Mr Mawhinney said it could be voted down. “I think the 75 per cent hurdle is actually a formidable one. And I think there’s every chance shareholders in Oil Search vote this down.”
According to some observers the redetermination of PNG LNG interests on September 30 was another marker that Oil Search might have been able to strike a better deal for itself from Santos.
“Redetermination, oil price and Papua and P’nyang progress may favour Oil Search more so than Santos since the original merger offer and some investors may still contemplate voting down the merger,” Credit Suisse analyst Saul Kavonic said.
“Given the 75 per cent vote threshold, a negative vote cannot be completely ruled out and we can perhaps hypothetically contend with the possibility some shareholders could seek someone like Peter Botten to return to the field, who may be the only person able to cajole momentum behind Oil Search as a stand-alone entity again. Unlikely, yes, but in the LNG game anything can happen.”
The merger, recommended by Oil Search, would hand the combined company 42.5 per cent of PNG LNG and a higher stake than operator ExxonMobil at 33.2 per cent, leading to speculation that Santos would look to sell a 10 per cent stake in the project.
Oil Search rose 1.4 per cent to $4.34 on Monday while Santos increased 1.7 per cent to $7.08.
More Coverage
