Santos has rejected Harbour Energy's upped bid of US$5.21/share (A$6.86) - we expect Habour has given up on Santos for now having made a number of failed approaches and putting forward fairly full bids.
Harbour re-approached in April 2018 with a bid of US$4.98 (A$6.50) subject to due diligence, funding and unanimous recommendation from the Santos board. This bid was at a 28% premium to the prevailing share price and a 43% improvement to the A$4.55 bid made in August 2017.
Following engagement with Santos in April and May, Harbour returned with its "best and final" bid of US$5.21. Santos cited the following reasons for rejecting this bid:
- Increase in Brent which has lifted the share price of its peers on the ASX
- Acquisition would be highly levered and require Santos to enter into hedging prior to transaction close to support Harbour's financing efforts
- Restriction on conduct of Santos' business from time of entering the Scheme Implementation Deed
- FIRB approvals
- Offer in US$ with Santos shareholders bearing the risk of fluctuations in the A$/US$ exchange rate
Ultimately, the rejection by the board is down to price and the recent rally in Brent has supported their argument.
Santos will now have to go alone and demonstrate to shareholders that it can independently create value. The board has put out strong messages that it will be able to do so with the company now entering strong cash flow generation territory and reduction in the company's debt significantly ahead of initial targets.
Harbour Energy is a private equity vehicle backed by EIG Global Energy Partners.
ENN/Hony hold c.15% shareholding in Santos and under its shareholding agreement, is obliged to vote in agreement with the majority of the Santos' board on matters of control.
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