Oil Search secures proxy nod for $21bn Santos merger ahead of shareholder vote on December 7
The oil and gas major has received backing from an influential proxy adviser for its $21bn Santos merger.
The $21bn merger between Oil Search and Santos has received a nod from influential proxy adviser Institutional Shareholder Services, recommending a qualified recommendation for the bumper deal ahead of a December 7 shareholder vote.
Oil Search requires 75 per cent of its investors to back the tie-up. But getting a deal over the line remains uncertain after an independent expert said Oil Search deserved a bigger share given the added value it would bring to Santos, even though the expert ultimately concluded in favour of the transaction.
ISS said a yes vote was warranted, however, given the recommendation from the expert, the 16.8 per cent premium the merger offers over its share price and the combined company allowing it to better fund and develop growth options in Papua New Guinea and Alaska.
“Support for the proposed merger is warranted in consideration of the all-scrip offer and premium available to Oil Search shareholders,” ISS said in its proxy report.
The “transaction provides a value uplift over prevailing trading prices of Oil Search shares, and continued participation in the assets of Oil Search, synergies and other benefits to maximise value compared to the risks identified by the Independent Expert from Oil Search continuing on a standalone basis.”
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.
Wilson Asset Management, which holds shares in both Santos and Oil Search, has previously backed the deal and said on Wednesday it remains in favour of the merger proceeding.
“We are still 100 per cent behind it and are looking forward to it going ahead,” Wilson Asset Management’s Matt Haupt said. “Oil Search has more value as a merged entity than a standalone.”
While Grant Samuel said in its expert report that shareholders in Oil Search faced a material loss of value under the financial terms of its merger, it ultimately concluded a deal was still in their best interests given bigger funding and development hurdles getting projects off the ground.
Mr Haupt said the current ratio terms were reasonable.
“The problem was Oil Share’s share price had been undervalued through existing management for a long period of time. So they weren’t realising value anyway. I think in Santos’ hands in the merged entity, the value will be realised.”
ISS agreed a transaction should get the green light from Oil Search shareholders.
“The proposed transaction is an all-scrip deal in which Oil Search shareholders receive a premium to the prevailing traded market prices for Oil Search shares while also remaining fully exposed to the future value of Oil Search assets,” ISS said. “The transaction is disclosed to unlock material pre-tax synergies, in which Oil Search shareholders will be able to benefit. There is no evidence of any superior offer.”
Oil Search shareholder Allan Gray, which owns nearly 5 per cent of the company’s stock, has said it remained unconvinced by the transaction.
Several investors have also 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 is also juggling a lawsuit by its ex-interim finance boss with the gas giants’s former top executives accused of bullying, physical and psychological intimidation and harassment.
Ayten Saridas left the company on December 1 after just three months in the role as finance chief designate, which included a shouting match with Oil Search’s then chief executive, Keiran Wulff.
Ms Saridas filed a statement of claim in the NSW Supreme Court on November 15 demanding damages for mental anguish and distress and physical injury due to psychological strains along with costs following an alleged breach of her employment conditions.