Australia's Santos gets improved bid from Harbour Energy at $10.8 billion

Stock SectorMay 20, 20186min7

(Reuters) – U.S.-based Harbour Energy raised its bid for Australia’s Santos Ltd (STO.AX) to $10.8 billion on Monday, hiking its offer for a fifth time in nine months after a steep rise in oil prices and potentially deterring any rival bids.

FILE PHOTO: The logo of Australian oil and gas producer Santos Ltd is pictured at their Sydney office February 15, 2016. REUTERS/Jason Reed/File photo

Shares in the oil and gas producer rose on the back of the sweetened bid but remain below the offer price amid uncertainty over whether the government will approve what would be the biggest takeover of an Australian resources company.

“You’ve got to think the new bump is going to make it more likely the board will approve it…But there are risks,” said Andy Forster, senior investment officer at Argo Investments, a top 10 shareholder in Santos.

Analysts have said the government might raise concerns that a takeover could dent gas supply on Australia’s east coast and could even raise questions about foreign companies not paying enough tax in Australia.

A successful bid would give Harbour access to a recently revived company with a low cost of gas production and stakes in liquefied natural gas (LNG) in the Asia-Pacific, where demand is soaring.

Harbour’s latest offer, raised twice over the past five days, is equivalent to A$6.95 a share at an exchange rate of 75 U.S. cents to 1 Australian dollar, and is at an 11-percent premium to the last close of Santos shares on Friday.

“The new higher bids underline Harbour’s desire to receive the board recommendation it needs and in our view staves off any ambitions from an interloper,” Royal Bank of Canada analysts said in a note on Monday.

Argo’s Forster said the prospect of receiving a special dividend with Australian tax credits attached as part of the bid was attractive. The special dividend would take the total bid value for local investors to around A$7.15 a share.

The latest proposal, up 4.6 percent from an earlier offer, is conditional on Santos increasing its hedging of oil-linked production in 2018 and changing its hedges for 2019, Santos said in a statement.

Harbour said the offer price would be increased slightly to a U.S. dollar amount equivalent to A$7.00 per share if Santos agreed to hedge 30 percent of oil-linked production in 2020, too.

The requirement for Adelaide-based Santos to step up hedging on its oil-linked contracts is tied to securing funding for the deal, as Harbour will be taking on a lot of debt for the acquisition on top of Santos’ net debt, expected to be around $2 billion by the end of 2018.

Hedging would lock in today’s higher oil prices and ensure cash flows needed to pay down debt.

Harbour wants Santos to line up the hedges as the Australian company can do it more cheaply than Harbour can, which then gives Harbour the ability to make a higher offer, a person close to the transaction said.

Oil prices LCOc1 have risen about 17 percent since Santos received Harbour’s $4.98 per share offer in April. [O/R]

Independent directors of Santos will consider the revised Harbour proposal, the company said.

Reporting by Sonali Paul; additional reporting by Chris Thomas in Bengaluru; editing by Richard Pullin

Let’s block ads! (Why?)

Source link





Web Design BangladeshBangladesh Online Market