Shares in a major Australian gas producer have dropped by double digits following the collapse of what would have been the biggest all-cash transaction in Australia's corporate history.
Santos shares were down 11 per cent to a three-month low of $6.81 on Thursday morning, after a consortium led by the United Arab Emirate's state-owned oil company walked away from months of takeover talks.
The Abu Dhabi National Oil Company's foreign investment arm XRG, alongside Abu Dhabi sovereign fund ADQ and private equity firm Carlyle, had in June floated a figure of $US5.262 ($7.92) per share, or $30 billion.
But the acquisition talks dragged on for months and finally broke down this week, the third time in the past seven years a transaction involving Santos has fallen through.
"While the consortium maintains a positive view of the Santos business, a combination of factors, when considered collectively, have impacted the consortium's assessment of its indicative offer," the group said on Wednesday evening.
"While disappointed not to move forward, XRG, and its consortium partners, are responsible, disciplined investors with a clear focus on creating value for our shareholders and driving long-term growth."
E&P analyst Adam Martin said the coalition may have realised that Australia's Foreign Investment Review Board was unlikely to approve the transaction given the political commentary that appeared to be growing around the deal, which would have put Santos' critical gas assets in WA and on the east coast in foreign hands.
"There will be speculation that XRG has 'found things' during due diligence," Mr Martin added. That was likely, he said, but he doubted they were material.
"Either way, another failed transaction creates doubt in the market," he said.
A year and a half ago, $80 billion merger talks with Perth-based Woodside Energy broke down, reportedly after the two sides could not agree on a valuation level.
Six years before that, in May 2018, Santos rejected a $14.4 billion final offer to be taken private by US private equity group Harbour Energy and terminated discussions.
Mr Martin said it was unlikely Santos would remain in its current form with investors and management looking for ways to create value.
Some institutional investors advocate Santos split itself, breaking its liquefied natural gas assets into a separate company.
Santos on Thursday highlighted that the XRG consortium had confirmed it maintained a positive view of its business and "respect for its management team".
The XRG consortium wouldn't agree to an appropriate allocation of risk between itself and Santos shareholders to finalise a scheme of implementation agreement, it added.
"This included the obligation of the XRG consortium to secure regulatory approvals and the provision of a reasonable commitment to the development and supply of domestic gas."
Santos chair Keith Spence emphasised the group's "low-cost operating model" and strong free cashflow.
"Our strategy is clear: generate cash, reward shareholders, reinvest to backfill and sustain our infrastructure, and build and grow our production, while continuing to operate safely and reliably," he said.
with Reuters
