Santos shares spike on takeover talk

Shares in Santos rose this morning after reports two state-owned Saudi oil giants may be looking to take over the Adelaide-based company.

Jul 04, 2024, updated Jul 04, 2024
Any takeover deal would need shareholder approval and securing Foreign Investment Review Board approval could also prove tricky. Photo: Liam Jenkins/InDaily.

Any takeover deal would need shareholder approval and securing Foreign Investment Review Board approval could also prove tricky. Photo: Liam Jenkins/InDaily.

Santos shares were up by nearly 6 per cent in morning trade following a report that Saudi state-owned companies Aramco and Abu Dhabi National Oil Co were planning separate takeover bids for the South Australian energy company.

According to Bloomberg, the two companies are studying potential bids for Santos as they ramp up international gas investments according to “people with knowledge of the matter”.

No detail of any anticipated offer was included in the Bloomberg report and Santos – Adelaide’s top company on the South Australian Business Index – is yet to comment publicly on the speculation.

In response to questions from InDaily, a Santos spokesperson said: “Santos does not comment on media speculation”.

InDaily approached Aramco and Abu Dhabi National Oil Co for comment but did not receive a response before deadline.

Portfolio analyst Toby Grimm from Baker Young – which owns Santos shares for clients – told InDaily that the rumours come amid “exceptionally strong” merger and acquisition activity in the global oil and gas sector over the past 12 to 18 months.

“The US$234 billion worth of M&A deals in 2023 was the highest in 11 years,” Grimm said.

“Part of this is arguably a push to become larger and drive down costs in what has been a relatively stable but lacklustre oil price environment, and strategic in the face of potential declining demand longer term as renewable energy sources impact demand for carbon fuels.

“The other argument for acquisitions is the elevated cost of exploration and development in today’s inflation-affected environment. There is significant uncertainty around resource project development costs and we have seen blowouts across the industry, making firms reluctant to sanction new projects and instead favouring buying existing assets even if they have to pay a premium.”

He said Santos has “world-class assets” that would be attractive to potential buyers, and that the company’s shares were cheap: “Santos shares have languished over the past decade”.

“This, combined with an extremely well-respected CEO who has effectively done the job he was brought in to do and one might speculate could consider moving on if the right opportunity came along,” Grimm said.

The analyst noted that any deal would need shareholder approval and that securing Foreign Investment Review Board (FIRB) approval could also prove tricky.

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“The entities cited are both State Owned Enterprises – that has been publicly stated as a negative for approvals in the broader resource space. We know, while a long time ago, even the UK’s Royal Dutch Shell was prevented from taking over Woodside Energy,” he said.

“One has to imagine the bar is very, very high for these entities to be successful. But what traders are betting is they may flush out a more acceptable bid, perhaps even from Woodside. Deep in speculative mode now, but Woodside has made it clear it is looking for large-scale acquisitions but has yet to make any moves post the Santos deal’s demise.

“The assets would be a relatively good mix with some synergies available, and importantly while there could be competition concerns the foreign investor issue would not be a problem.”

The news follows a failed tilt for Santos by Perth-based Woodside which – if it were successful – would have created an $86 billion oil and gas giant.

Woodside announced in February that it would no longer proceed with its plans to merge with Santos.

At the time, Santos said “sufficient combination benefits were not identified to support a merger that would be in the best interests of Santos shareholders”.

“Santos has a clear strategy to deliver long-term shareholder value. We have a strong balance sheet and continue to review options to unlock value for shareholders.”

When the Woodside deal was first announced last December, the Malinauskas Government and the South Australian Business Chamber both voiced concerns over the proposed merger.

At the time, Energy and Mining Minister Tom Koutsantonis said that the state government would “do everything it can to ensure South Australian jobs are protected and that companies headquartered in South Australia remain in South Australia”.

Speaking to reporters at the last Santos AGM in Adelaide, CEO Kevin Gallagher said Santos was “focused on running our own race”.

“And that’s what we’ll continue to do at Santos,” the CEO said.

“The fact that other companies are looking at Santos, and want to merge or acquire Santos, I think speaks volumes to the portfolio of opportunities that we have and the value that they see across our portfolio.

“I think Santos is significantly undervalued, but I do believe that if we continue to execute on strategy we’ll see that value come through in the share price.”

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