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Australia’s oil and gas producer Santos rejected on Tuesday the best and final US$10.9-billion (AUS$14.4 billion) takeover offer from U.S. Harbour Energy, saying that it undervalues the Australian company as oil prices rally and that it carries foreign exchange and private-equity transaction risks.
In early April, Santos said that it would engage in talks with Harbour Energy after receiving the fourth unsolicited takeover bid from the U.S. firm since August 2017, with the April 3 bid raising the offer to US$10.4 billion (AUS$13.5 billion).
Since that April offer, Harbour Energy had sweetened the offer three times, including one “best and final” offer on Monday, which was conditional on Santos undertaking additional hedging of oil-linked production in 2018 of some 30 percent and changes to hedging in 2019.
“After careful consideration of all aspects of the Final Proposal, the Santos independent directors and Managing Director & CEO have unanimously resolved to reject the Final Proposal on the basis that it does not represent a full value of the company and, when combined with the associated risks, is not in the best interests of Santos shareholders,” the Australian company said on Tuesday, noting that it had terminated all discussions with Harbour Energy.
Santos’s board decided that the “best and final offer” from Harbour offers a too low price and reduces the implied premium for Santos shareholders since the April 3 proposal, in light of the oil price rally and the energy peer group performance on the Australian stock exchange. Brent oil prices have gained 14 percent and the share prices of other major ASX-listed energy peers increased by an average of 18 percent since the indicative proposal on April 3, Santos said.
Another consideration for rejecting the proposal was the US dollar-based bid with foreign exchange risk for more than 120,000 retail shareholders, the Australian company noted.
Santos also factored in its rejection the “complexity and risk in the transaction structure, including its reliance on a high level of debt funding”, and “Santos being required to assist Harbour’s debt raising and to undertake significant hedging, removing potential upside to higher oil prices.”
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.