Santos CEO rejects blame over collapsed $30bn Abu Dhabi takeover deal
Kevin Gallagher wants to set the record straight as both sides assess the fallout from the canned $30bn takeover deal, and has rubbished talk he’s going anywhere.
Santos boss Kevin Gallagher has absolved the South Australian gas producer of any “failure” after the $30bn Abu Dhabi takeover collapsed and rejected speculation he may depart as chief executive. He plans to stay in the top job for at least two more years.
Investors were left deflated by the collapse of a third deal for the oil and gas company, heaping pressure on the board to consider a radically different future for Santos and possibly a break-up.
But the Santos chief deflected any criticism of the way it handled its side of the deal after a war of words erupted over why the three-month long buyout collapsed at short notice.
“I love the way that you use the term failed. Who failed? We’re not actively out selling the company, so we haven’t failed,” Mr Gallagher told a media conference on Friday; the deal was abandoned by the Abu Dhabi National Oil Co-led XRG consortium on Wednesday night.
“If someone’s trying to buy the company and they don’t buy the company, I guess you can say they’ve failed. But you’d have to ask them that question, not me.”
MST Marquee analyst Saul Kavonic said the Santos board may need to consider the leadership of Mr Gallagher in light of the agreed offer crumbling. Mr Gallagher said he plans to stay on for at least another 18 months and chairman Keith Spence is due to depart in 2027.
“I saw a lot of stuff in the press about, ‘oh, he’ll be stepping down, he’ll be taking his cheque and retiring’,” Mr Gallagher said. “My plan was to stay on and work with XRG if they became the new owners. It made no difference to me who the owners were going to be.
“My plan would have been to work on.
“Now maybe after six months, they (would have) tired of me and kicked me out anyway ... decided they had enough of me.
“But the plan was that management team would be retained as part of that transaction. And so I’ve got no plans to retire anytime yet.”
He said his tenure beyond his contracted period was a matter for the board.
A spat emerged between Santos and XRG over the deal derailment with a letter sent by Santos on Monday to its suitor including stipulations over committing to domestic gas supply.
However, Santos said demands made by the South Australian producer to XRG around domestic gas security were in the normal course of business.
“What we were saying is that in this case we couldn’t get agreement on what we thought were very much the sort of conditions that you’d expect. I mean, this deal was not going to happen without commitments to the domestic gas market, for example, and we couldn’t reach agreement on this,” Mr Gallagher said on the media call.
“I’m not going to go into the detail of what they were, but it wouldn’t be anything out of the ordinary.
“It wouldn’t be anything more than (journalists) have been writing about collectively over the last few months.
“So there’s nothing substantially more or different. But for commercial reasons and confidentiality reasons, I’m not going to go into it.”
Foreign Investment Review Board clearance had been named as a major impediment to the deal getting the green light, given Santos’s role as a major energy producer and the precarious domestic gas industry on Australia’s east coast where supply shortages are forecast by 2028.
“We think that in the current gas market dynamic, a lack of commitment to domestic supply would have likely failed FIRB review, and to then ask shareholders to carry this regulatory risk was unfair,” Barrenjoey analyst Dale Koenders said in a research note.
While the XRG camp said regulatory and FIRB uncertainty did not play any part in its decision to walk away from the transaction, Abu Dhabi’s ability to juggle competing demands from unions, state and federal governments may have added to the complexities of the deal, according to the Santos chief.
“Ultimately if they didn’t know before how complex Australia is and the multifaceted stakeholder issues that you have to deal with in these types of transactions, they certainly have a very good feel for it now,” Mr Gallagher said.
“In terms of the number of stakeholders, the domestic gas issues and the self interest and scrutiny you do get on these size of deals, Australia is a tough place to do business.”
Macquarie pointed to the deal structure as the factor that ultimately sank the buyout.
“Given the potentially lengthening timeframe of this transaction - Abu Dhabi’s approval time frames and multiple regulator processes including FIRB - the deal consideration was
poorly structured in our view with all dividends being deducted from the all-cash offer price,” Macquarie said.
“This would have made the eventual shareholder vote challenging if the August 2026 dividend was deducted, and may have caused some last-minute negotiating issues.”
The broker expects Santos will now need to consider asset sales such as a divestment of Pikka in Alaska along with the potential demerger of some domestic assets.
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