Australia's Santos rejects EIG buyout offer

In a filing, Santos said it rejected the bid because it was highly leveraged and would have required the company both to provide significant support for EIG’s debt and to hedge a significant portion of its oil production. It also said that because EIG’s offer was denominated in US dollars rather than Australian dollars and the proposal had no provision for adjusting the price against fluctuations in the exchange rate, Santos’ shareholders would be at risk of losses in the final deal.

EIG, acting through its investment vehicle Harbour Energy, had offered to pay $4.98 per share for Santos. It subsequently raised the offer to $5.21 with the option of increasing again to $5.25 if Santos would enter certain oil price hedging arrangements. Hony and ENN had committed to roll over their shares in Santos into the acquisition vehicle.

Following the announcement Santos shares opened at A$5.88 on May 23, down from the previous day’s close of A$6.43. The price has hovered around the same level since, standing at A$5.85 in midday trading on May 24. The share price had spiked 14.8% to A$5.89 when EIG made its initial offer in April and climbed gradually since then, with a slight jump to A$6.36 on May 16 in response to reports that a deal was imminent.

Santos was founded in 1954 and concentrates on the exploration and production of upstream natural gas and petroleum resources, as well as the development of midstream liquified natural gas (LNG) terminals in Asia. The company produced 59.5 million barrels of oil equivalent (mmboe) in the 2017 financial year and sold 83.4 mmboe. Revenue grew from $2.59 billion the previous year to $3.11 billion, while net profit grew from $63 million to $336 million.

ENN is currently the largest single shareholder in Santos with a 10.31% stake, while Hony holds a 4.8% stake. Hony was responsible for ENN’s initial investment in Santos, having exited an 11.72% stake to ENN for $755 million in 2016. The two investors later increased their combined holding to 15.1%.

EIG targets energy and energy-related infrastructure on a global basis and had $17 billion under management as of September 2017. During its 35-year history, the firm has invested over $25.3 billion in the sector through 324 projects or companies in 36 countries on six continents. Last year, it took a minority stake in Australian oil and gas producer Senex Energy.

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• Topics
• Australasia
• Greater China
• Buyouts
• Infrastructure
• Australia
• China
• EIG Global Energy Partners
• Hony Capital
• energy