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Santos Faces Significant Hurdles in AUD 8.89 Takeover Bid by ADNOC Consortium
Santos Limited (ASX: STO) is currently under the spotlight due to a cash takeover offer of US$5.76 per share from a consortium led by the Abu Dhabi National Oil Company (ADNOC), in partnership with the XRG Consortium—which includes Abu Dhabi Development Holding Company and private equity firm Carlyle. This translates to an approximate valuation of AUD 8.89 per share at the current AUD/USD exchange rate of 0.6478, presenting a 27.7% premium over Santos’s last closing price of AUD 6.96. However, the offer is contingent upon confirmatory due diligence and the necessary regulatory approvals.
Speculation surrounding ADNOC’s interest in Santos dates back to July of the previous year, with earlier discussions suggesting that Saudi Arabia’s Aramco might also consider a bid, although the company later refuted these rumors. It’s noteworthy that Woodside Energy (ASX: WDS), Australia’s largest energy firm, previously attempted merger talks with Santos but failed to reach an agreement.
With Santos trading at around AUD 7.80, below the bid price, it suggests investor skepticism regarding the attractiveness of the offer, primarily due to the perceived lack of rival bidders and concerns over potential regulatory hurdles facing ADNOC’s proposal.
Potential Rival Bidders: Woodside and Beyond
Since the collapse of merger talks with Santos in February of the previous year, Woodside has shifted its focus towards the US, investing heavily in its proposed Driftwood LNG project in Louisiana, along with substantial capital expenditures on its flagship Scarborough LNG project and a low-carbon ammonia plant in Texas. Given these commitments, Woodside is unlikely to emerge as a competitor for Santos.
Contrarily, Aramco remains active in the global LNG market and has secured numerous stakes in LNG projects, including a recent memorandum of understanding with Woodside for potential equity participation in the Driftwood project. While Aramco has shown interest in minority stakes, a full acquisition of Santos may not align with its current investment strategy, particularly in light of its recent denial of any interest in Santos.
Analysts from Evans & Partners have expressed a lukewarm outlook, downgrading Santos from “Positive” to “Neutral”. They highlight global energy companies, such as TotalEnergies and BP, as potential suitors due to overlapping assets and trends in the LNG sector. However, despite calling this an opportune moment to consider acquiring Santos, they indicated that a competing bid is not likely.
Regulatory Roadblocks for ADNOC’s Bid
A significant concern surrounding ADNOC’s offer is the rigorous regulatory landscape it must traverse. The bid requires approvals from:
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Foreign Investment Review Board (FIRB) & Australian Treasurer: FIRB evaluates foreign investment proposals concerning national interests, particularly given Santos’s control over critical energy infrastructure, such as the Moomba Gas Plant and Darwin LNG facility.
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National Offshore Petroleum Titles Administrator (NOPTA): ADNOC must apply for the transfer of Santos’s offshore petroleum titles, and demonstrate both technical and financial competencies to operate the assets in compliance with environmental and safety regulations.
- Papua New Guinea Government: As Santos holds significant stakes in PNG’s LNG sector, including PNG LNG and Papua LNG projects, regulatory clearance from several PNG bodies is essential. These approvals will require ADNOC to convince stakeholders of its commitment to local economic development.
Conclusion: A Likely Hurdle for ADNOC’s Bid
While ADNOC’s bid showcases a hefty premium that captures market attention, investor sentiment remains tepid, reflecting significant doubts surrounding the feasibility of securing regulatory approvals. The complexities tied to FIRB, NOPTA, and PNG regulatory requirements compound the challenges of navigating national interests, particularly concerning critical infrastructure and energy security.
With major players like Woodside and Aramco deeply entrenched in their current strategies, the pool of potential rival bidders for Santos appears limited. Though companies like TotalEnergies and BP may be speculative considerations, the immediate focus remains on ADNOC’s bid and its potential hurdles rather than its valuation.
In summary, while the proposed acquisition presents an appealing offer for shareholders, the regulatory landscape poses an alarming risk factor threatening the deal’s viability. Investors seem to perceive the ADNOC offer more as a ceiling for Santos’s valuation, rather than a definitive conclusion to the takeover saga.
