The Papua New Guinea-focused oil, gas, and LNG producer Oil Search has rejected a merger offer made by Australia’s energy major Santos.
Santos said on Tuesday that it approached Oil Search about a possible merger last month – or more precisely 25 June 2021 – but its proposal to create an energy company with a market value of AUD 22 billion ($16.1 billion) was rejected.
At the time the offer was made, it was a confidential, non-binding indicative all-scrip merger proposal to the Oil Search board.
Santos stated that it offered 0.589 of its shares in exchange for each Oil Search share on issue. In case of a deal, the company’s shareholders would own 63 per cent of the combined company while Oil Search investors would hold the remaining 37 per cent.
The ownership ratio implied a transaction price of A$4.25 per Oil Search share. This represented a 12.3 per cent premium to the Oil Search closing price on 24 June 2021 of A$3.78.
Santos further claimed that it received a response regarding its merger offer on 9 July 2021. In it, Oil Search acknowledged the strengths of the combined company and the rationale for the merger proposal but noted that the proposal did not offer appropriate value for Oil Search shareholders or a basis on which discussions could be progressed.
It is worth noting that Santos would still be seeking to engage Oil Search about the merits of a deal as the merged entity would become a top-20 ASX-listed company as well as be among the 20 largest global oil and gas companies.
In its rationale for the merger, Santos explained that the new entity would have a diversified portfolio of high quality, long-life assets across Australia and Papua New Guinea. The combination would also support the development of key projects including Papua LNG.
Also, the merged company would have a larger portfolio of development assets and opportunities for optimisation and strong ESG credentials providing greater access to debt and equity capital, among other things.