Santos to push Harbour Energy to sweeten offer
The Santos board is set to push private US firm Harbour Energy to sweeten its $13.7 billion takeover bid.
The Santos board is set to push private US firm Harbour Energy to sweeten its $13.7 billion takeover bid, after a binding offer was made at an unchanged price despite a 15 per cent jump in oil since an original approach seven weeks ago.
Harbour, run by former Shell executive Linda Cook and managed by EIG Global Energy Partners, yesterday made what Santos said was a binding, conditional offer at $US4.98 a share, which translates to $6.64 at yesterday’s exchange rate.
The bid price was less than many shareholders were hoping for and sent Santos shares down 12c, or 1.9 per cent, to $6.20 yesterday because of concerns it would not result in a deal.
Santos said its board would consider the bid.
“There is no certainty that the revised Harbour proposal will result in an offer for Santos that is capable of being considered by shareholders,” Santos said.
If successful, the deal would be the biggest takeover of an Australian resources company and would put it in foreign hands a decade after a shareholder cap, originally designed to thwart corporate raider Alan Bond, was removed.
At the beginning of this month, Santos chairman Keith Spence said Harbour, whose original approach led to a five-week due diligence period, would need to recognise recent increased oil prices. “Clearly, the oil price impact, of oil price increases in recent times, must have some impact on the perception of value,” Mr Spence said after the May 3 Santos annual meeting in Adelaide.
“In the short term, higher oil prices are generating more cash flow for the business and the business therefore needs to be compensated.”
Neither Santos nor Harbour would comment yesterday.
There is nothing to indicate this is Harbour’s final price. But another offer would mean Harbour, which made three previous unsuccessful approaches, has to bid against itself a fifth time.
Earlier this week, Morgan Stanley raised its 2020 Brent oil price forecast from $US65 to $US90 a barrel on the expectation strong global growth would drive greater demand for transport fuels. Brent prices yesterday were trading around $US79 a barrel, having risen about $US10 since the $US4.98 approach was first made.
The binding offer has come two days after Santos chief executive Kevin Gallagher revealed there had been no issues raised with Santos during a five-week due diligence period and after major Santos shareholders ENN and Hony Capital agreed to work with Harbour on the bid.
Santos shares were trading at $5.07 before the original approach was revealed on April 3.
Last week, Citi analyst James Byrne said a bid price of $7 a share would probably be needed to get the deal across the line.
“It is less than likely that the board will recommend the bid as it stands,” Mr Byrne said yesterday. He said the downside risk would be limited if Harbour walked away because the due diligence did not find anything untoward and because of the improved oil price.
The revised bid removes the option to lock in an Australian dollar price for some shares, meaning Santos shareholders will now take on all of the currency risk in a transaction.
It is conditional on Foreign Investment Review Board approval and final due diligence and is to be completed through a scheme of arrangement requiring 75 per cent shareholder approval.
Concerns over FIRB approval, which federal Resources Minister Matt Canavan earlier this week said had not yet been applied for, have also kept the share price below the offer price.
On Wednesday, Santos revealed Harbour had become an indirect substantial shareholder with a 15.1 per cent stake after the predator struck a deal to keep ENN and Hony part of an unlisted Santos.
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