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

Santos shares drop 9 percent after snubs $10.8 billion takeover offer

MELBOURNE (Reuters) - Shares in Santos Ltd (STO.AX) fell 9 percent after the Australian gas producer rejected a $10.8 billion takeover offer from U.S.-based Harbour Energy, holding up slightly better than analysts had expected.

A sign for Santos Ltd is displayed on the front of the company's office building in the rural township of Gunnedah, located in north-western New South Wales in Australia, March 9, 2018. Picture taken March 9, 2018. REUTERS/David Gray

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 Santos shares would only be worth about A$5.10, based on the performance of shares in rivals Woodside (WPL.AX) and Oil Search over the same period.

However, Santos shares fell just over 9 percent to a six-week low of A$5.82, retaining some element of a takeover premium.

“Santos remains a prime acquisition target for Harbour if they persist with their LNG ambitions, or any other player looking to establish an LNG investment platform,” Wood Mackenzie analyst Saul Kavonic said.

He said if oil prices dropped again, Santos could reemerge as an attractive acquisition at the recent bid levels.

“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.

Reporting by Sonali Paul; editing by Richard Pullin

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