LEADING PNG gas producer Santos has named improving oil prices and share market activity amongst its reasons for rejecting a major takeover offer from Harbour Energy Ltd.
Santos said that since Harbour’s initial offer on May 21 and a number of subsequent increases in the offer price, Brent oil prices have increased by 14 per cent and the share prices of other major ASX-listed energy peers by an average of 18 per cent.
The company added that its business has continued to perform well and is generating strong free cash flow.
Against that Santos said Harbour’s Final Proposal was a highly leveraged private equity-backed structure that, prior to implementation, would have required Santos to provide significant support for Harbour’s debt raising and to hedge a significant proportion of oil-linked production. In addition, the Final Proposal was stated to be subject to various conditions, including FIRB approval and restrictions on the conduct of Santos’ business from the time of entering into the Scheme Implementation Deed until implementation.
After careful consideration of all aspects of the Final Proposal, the Santos independent directors and managing director and CEO 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.
Accordingly, Santos has now terminated all discussions with Harbour Energy.
Santos Chairman Keith Spence said the company has a well-developed strategy, strong leadership and management team and outstanding growth opportunities that the Board believes will deliver superior value for its shareholders over time.
In arriving at its decision, Santos placed strong regard on the following matters:
Santos Board believes superior shareholder value could be realised by executing existing strategy
• The significant improvement in operating performance over the past two years and a continuing positive outlook;
• Santos expecting to reach its 2019 net debt target of $2 billion more than a year ahead of schedule, based on current oil prices;
• Santos’ strong balance sheet enabling restoration of fully-franked dividends in the near term;
• The superior value for shareholders that the Santos Board believes could be realised through the execution of Santos’ existing strategy, capitalising on its strong free cash flows, sustainable low cost operating model and significant growth opportunities; and
• Feedback from shareholders indicating support for Santos’ existing strategy and management.
Offer price too low; control premium inadequate
• The reduction in the implied premium for Santos shareholders since the Indicative Proposal, in light of the strengthening oil price and ASX-listed energy peer group performance;
• Harbour’s confirmation that the Final Offer was “best and final”; and
• A US dollar-based bid with foreign exchange risk for more than 120,000 retail shareholders.