Santos has rejected a revised takeover offer of $10.8bn from US-based Harbour Energy on the grounds that the proposed transaction undervalued the company and was complex and risky to execute.
The Australian oil and gas producer has also terminated further discussions with Harbour Energy, which had made five approaches to acquire it over the last nine months.
As per the last offer given by Harbour Energy, Santos would be paid $5.21 per share for 100% of its shares by the former’s Australian subsidiary – Harbour Energy Australia.
Harbour Energy revealed that it could hike its offer to $5.25 per share should Santos agree to extend certain oil price hedging arrangements. Under this proposal, Santos would have to take up additional hedging of oil-linked production in 2018 of around 30% and carry out changes to hedging in 2019.
The proposal was termed as ‘best and final’ by Harbour Energy.
However, Santos determined that the offer did not represent a complete value of the company and, when clubbed with the associated risks, was not in the best interests of its shareholders.
The Australian firm said that since the time of the indicative proposal from Harbour Energy of $4.98 per share, Brent oil prices have gone up by 14% while share prices of other key ASX-listed energy rivals have gone up by an average of 18%.
Also Santos said that its business continued to do well while generating strong free cash flow.
Explaining its stance further, the Australian oil and gas producer said that the final proposal from Harbour Energy was a highly leveraged private equity-backed structure. Before implementing it, Santos would have needed to give considerable support to debt raising by the US firm and also to hedge a major portion of oil-linked production.
Additionally, the final proposal would have been subject to multiple conditions such as approval from Australian Foreign Investment Review Board (FIRB) approval, said Santos.