Santos may have to lift offer as Oil Search boss digs in
SANTOS will have to boost the terms of its $23bn merger proposal given Oil Search shows little sign of opening the door on the current bid while the pitch by its interim boss to snare the job permanently indicates it sees an independent future for the company, analysts said.
Oil Search’s interim chief executive said on Monday the company will require a higher bid from Santos before it opens talks over a tie-up, with Peter Fredricson declaring he wants the top job permanently as he seeks to unite staff unsettled by the shock exit of former chief executive Keiran Wulff. A 5 per cent lift in Santos’ bid may be required to get the Oil Search board over the line, he said.
“I do think a premium is required to grease the wheels of this deal and, given the size of the prize, would hate to see Santos miss out because of 3-4 per cent here or there,” MST Marquee analyst Mark Samter said.
“Santos is worth a lot more with Oil Search (and vice versa), but there is a big asymmetry of share price outcomes if the deal fails. So, with Oil Search trading at a 3.5 per cent premium to the rejected offer, and my view maybe we get a 5 per cent lift to get a marriage proposal accepted, my fresh dollar into the pair logically lands with Santos today.”
Oil Search on July 9 rejected the all-share offer which would have given it 37 per cent of the merged company, saying the deal to create Australia’s biggest oil and gas company offered a premium of only 6.8 per cent despite its rival owning 70 per cent more of the equity.
Mr Fredricson’s call for Santos to add a “couple more carats” to the diamond ring struck a jarring tone, according to the broker.
“I hope it was just a bit of public posturing by Oil Search, which I totally get if the right outcome prevails, but I have to confess to being a bit surprised by the tone from the Acting CEO in the article,” Mr Samter said. “To me, there are real risks when the former beauty pageant winner gets too big for their boots and thinks they can demand a bigger ring, even when their looks have already started to fade a fair bit.”