May 23, 2018 / 12:09 AM / a year ago

Santos shares set to slide after snubs $10.8 billion takeover offer

MELBOURNE (Reuters) - Shares in Santos Ltd (STO.AX) are expected to drop at least 10 percent after the Australian gas producer rejected a $10.8 billion takeover offer from U.S.-based Harbour Energy, analysts said on Wednesday.

Santos late on Monday rebuffed Harbour’s sixth offer in nine months, worth up to A$7.00 a share, stunning investors and analysts who considered the offer well worth considering.

“We thought it was a pretty good offer. I’m not sure when we’ll necessarily see A$7.00 again,” said Andy Forster, senior investment officer at Argo Investments, a top 10 shareholder in Santos.

“I’m a bit surprised we didn’t get an opportunity to at least vote on it,” he said.

Macquarie analysts predicted Santos shares could drop as much as 15 percent to between A$5.50 and A$5.80 without a takeover premium to shore up the stock.

Based just on the 29 percent rise in Brent crude prices LCOc1 since Harbour’s first approach was revealed last November, Santos shares would be worth about A$5.65.

Harbour Energy noted in a statement that shares in rival Woodside (WPL.AX) have risen 12 percent over the same period, while Oil Search’s (OSH.AX) shares have climbed 20 percent. Those moves suggest Santos shares would only be worth about A$5.10, it said.

“Santos has a well-developed strategy, strong leadership and management team and outstanding growth opportunities that the Board believes will deliver superior value for its shareholders over time,” Santos Chairman Keith Spence said in a statement late on Monday.

Analysts said that while Santos had done very well slashing costs over the past two years, paying down debt and putting itself in a position to resume paying dividends, risks remained around its growth projects.

The key growth projects that most have put any value on are the development of the Barossa gas field off Darwin and an expansion of the PNG LNG project in Papua New Guinea, but those depend on others who are in control — ConocoPhillips (COP.N) and ExxonMobil Corp (XOM.N) respectively.

“Santos’s board have put out a clear challenge, ‘Trust us, trust the strategy!’ But there is a world of difference between cutting costs to survive and sustaining them while growing,” Macquarie analysts said in a note.

Santos shares are due to open at 0100 GMT.

Reporting by Sonali Paul; editing by Richard Pullin

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