Time for ‘charmed’ Santos to play hardball with $30bn suitor
Origin Energy found out what happens when you lend too much support to prospective bidders, a move that triggered open rebellion between the board and its own shareholders during a takeover bid. Ultimately, shareholders got their way with Origin and were better off for it.
After missing two deadlines to complete due diligence and finalise an agreement, Santos has decided to grant the Abu Dhabi National Oil Company and Carlyle another four weeks of exclusivity to conclude the process and to secure its own internal approvals to move to a binding transaction. As it stands there is no agreement on the planned $8.89 a share cash bid.
The delay has the hallmarks of a stalling tactic by XRG, and it’s bewildering that Santos’ board, led by Keith Spence, is all too willing to comply. This is starting to look like XRG is calling the shots.
The diligence lock-up keeps other prospective bidders on the sidelines, while a trio of Santos’ big growth projects that represent a fresh share price catalyst are moving closer.
Meanwhile, the delay leaves little clarity over whether the $US435m interim dividend declared by Santos will be deducted from the final bidding price. Shareholders will also be seeking protections about the full-year dividend, with the process now likely to drift into the new year.
All this was left for Santos chief Kevin Gallagher to defend during his interim results briefing, and he could offer little apart from promising that all will be answered in four weeks.
XRG was waiting for “corporate approvals”, Gallagher said, and while these have been disclosed to Santos’ board, he was not in a position to elaborate.
“We’ve worked well with the folks from XRG over the last few weeks, and as a result of the progress that we’ve made, the considerable progress that was made towards an acceptable SIA (scheme agreement) and given that the consortium has again confirmed that it’s found nothing in due diligence that would make it consider withdrawing,” Gallagher said.
It’s a different view from the outside, with the takeover looking like it’s going nowhere.
And this is before the Albanese government has yet to weigh up the takeover proposal for a slice of the nation’s critical energy infrastructure.
The first gas is about to flow on the Barossa offshore field and a better-than-expected ramp-up in time for a recovery of spot LNG prices, could change the economics of Santos.
At the same time, the first oil production from its Pikka phase 1 project in Alaska has now been brought forward to the first quarter of next calendar year, with nameplate production by June. At the same time, there’s increased confidence on a decision around the Papua New Guinea LNG expansion moving forward early in the new year, which could be another share price boost. Despite Santos’ long history of underwhelming, it now has tangible growth options ahead of it.
It’s a long bow for XRG to leave investors to believe the deal has stalled on internal paperwork. Santos’ board needs to tell XRG to put up or shut up.
johnstone@theaustralian.com.au
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The Santos board is bending over backwards to make life easy for bidding hopeful, Middle East-backed XRG consortium, granting a second extension in as many weeks to allow them to get their house in order so it can push ahead with their proposed $30bn bid.