Oil Search investors weigh no vote on $21bn Santos merger
Several major institutions plan to vote against Oil Search’s $21bn Santos merger, but proxy advisers have backed the deal.
A number of large Oil Search shareholders are against the gas producer’s $21bn merger with Santos, amid ongoing concern the company is being handed over too cheaply to one of its major energy rivals.
While all major proxy advisers have recommended Oil Search investors back the tie-up, a range of major Australian and offshore institutions remain against the all-share deal and are hopeful they may have the numbers to scupper the transaction.
Several institutions who spoke to The Australian said Oil Search was worth at least $1bn in additional value and were dismayed that chairman Rick Lee had not pushed harder in his attempts to renegotiate more favourable terms given the value gap highlighted in the independent expert’s report.
“It’s value expropriation and the board is just letting it happen,” one shareholder said. “Or the board is just lazy and just wants to be done with it and give it away.”
Under the terms of the deal, Oil Search will own a 38.5 per cent share to Santos’ 61.5 per cent which was at odds with an expert’s report on the deal which found it would add 43-44 per cent of the value of the merged companies.
That gap led to Oil Search probing in its talks with Santos whether a change to the merger valuation terms should be considered, sources told The Australian. The plea was rejected by Santos, but the move stoked anger among critics of the deal that Mr Lee had failed to win a better outcome for shareholders.
Allan Gray — which owns nearly 5 per cent of the company’s stock — has been the only major investor to publicly oppose the deal so far and while several more large shareholders will vote against the combination, it may still struggle to galvanise enough support to vote the deal down.
The Oil Search board, which has recommended the bid, needs the support of 75 per cent of shareholders at the December 7 meeting.
Big Oil Search investors including Vanguard and BlackRock may side with the proxy advice and back the deal while the voting motives remain unclear for Abu Dhabi’s Mubadala, which sold half its stake in June.
The three proxies — Ownership Matters, ISS and CGI — have all now recommended the bumper tie-up along with the Australian Council of Superannuation Investors despite concern the company is being handed over too cheaply to a major energy rival.
CGI criticised Oil Search’s failure to solicit interest from other potential bidders in the market and said the value gap may still vex some investors, but still concluded the overall transaction holds merit.
“We understand that there may be aspects of the proposed merger that may leave at least some Oil Search shareholders questioning whether this deal, as currently structured, represents a fair exchange of value,” CGI said.
“However, after having reviewed the various relevant circumstances and factors at play here, we believe that the proposed merger can reasonably be viewed as being a compelling strategic alternative for the company and its shareholders.”
Oil Search fell 0.2 per cent to $4.22 on Thursday, while Santos dropped 1 per cent to $6.82.