Abu Dhabi National Oil Company has withdrawn the $18.7 billion offer it led to buy Australian gas producer Santos, opens new tab after months of wrangling over valuation and terms.
The move on Wednesday may slow down ADNOC’s aggressive overseas expansion as the firm looks to invest its booming domestic oil income. It also highlights the difficulties foreign firms face when trying to buy assets in Australia.
ADNOC’s overseas unit XRG’s bid with Abu Dhabi sovereign fund ADQ and private equity firm Carlyle for Santos became a third failed bid to buy Santos.
Santos previously rejected a $10.8 billion offer from private equity-backed Harbour Energy in 2018 and walked away from talks with its bigger Australian rival Woodside Energy, opens new tab last year to create a possible A$80 billion oil and gas giant.
“The market will ask questions about Santos’ valuation after this … XRG was a less price sensitive buyer than most yet still couldn’t make it work,” said MST Marquee senior energy analyst Saul Kavonic.
Santos in a statement said it had expected to enter a deal at the agreed price on or before September 19 and had expressed concerns over delays in reaching a formal agreement.
The company said the consortium refused to agree to a fair sharing of risk, including taking responsibility for securing regulatory approvals and committing to domestic gas development and supply.
XRG in its statement said the decision was taken after taking into account all commercial factors. The consortium was ready to undertake new long-term commitments to Australian energy production and enhance regional energy security, it added.
The Australian government did not respond to requests for comment outside of business hours.
XRG, PARTNERS FOCUSED ON SHAREHOLDER VALUE
“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,” XRG said in a statement released after Australian financial market hours.
Santos’ shares closed on Wednesday at A$7.65, well below the consortium’s indicative $5.76 per share offer, which had equated to A$8.89 per share when the bid arrived in June.
The shares have consistently traded below the offer price, which analysts interpreted as a sign from investors that the deal was at risk of not proceeding.
Santos in June said the offer came after it had rejected two previous proposals made by the consortium in March, at $5.04 and $5.42 per share, that were not made public.
Taking into account net debt, the deal would have given Santos an enterprise value of A$36.4 billion ($24.30 billion), which would have made it the largest all-cash corporate buyout in Australian history, according to FactSet data.
The consortium had extended its due diligence on Santos and had up until Friday to finalise a formal offer.
OPPORTUNITIES TO SELL DOWN SOME ASSETS
“Despite this outcome, we believe Santos’ APAC-facing LNG assets continue to hold geostrategic value in this turbulent time,” Kaushal Ramesh, vice president, gas and LNG research at Rystad Energy, told Reuters.
MST Marquee’s Kavonic echoed that.
“There should still be an opportunity for Santos to sell down some assets to realise value and fund more growth to deliver for shareholders, but its unclear of this can happen under the current leadership,” Kavonic said.
He added there would still be scope for ADNOC to pursue simpler and less controversial asset-level deals.
“ADNOC ambitions haven’t changed. Santos just won’t be their big LNG debut.”
($1 = 1.4981 Australian dollars)
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