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Santos shares soar after company spurns US$7.2 billion takeover approach

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Reuters are reporting that Santos has announced that it rejected a US$7.2 billion takeover approach in August, sending its shares up 13% on speculation another offer was likely to emerge.

Santos, with stakes in three LNG projects in a region where gas demand is soaring, said it rebuffed the approach from private equity-backed Harbour Energy as too cheap and has not received a further proposal.

It revealed the August approach after a newspaper reported that US-based Harbour, led by a former executive director of Royal Dutch Shell Plc, Linda Cook, was set to make a bid worth around AUS$11 billion.

Santos said in a statement it had turned down the “non-binding conditional and indicative” takeover proposal from Harbour at AUS$4.55 a share, but said it had no current proposal from Harbour and was not in talks with the group.

The Australian Financial Review said Harbour is lining up a bid of around AUS$5.30 a share, well above analysts’ average price target of AUS$4.26.

Santos, whose shares hit a 15-month high of AUS$4.97 on 16 November, also rejected a AUS$7.1 billion proposal in 2015 from a fund backed by the ruling families of Brunei and the United Arab Emirates, at a time when the company was saddled with nearly AUS$9 billion in debt.

Analysts said a bid even at AUS$5.30 was unlikely to be accepted by a company that has since slashed debt, cut costs and is poised to benefit from rising oil and gas prices at its Gladstone LNG project, Papua New Guinea LNG, Australia’s Cooper Basin and offshore northern Australia.

The main prize in Santos is its stake in the Papua New Guinea LNG project, run by ExxonMobil Corp.

PNG, considered the lowest cost source of LNG growth, has been a hotbed of takeover activity, which could see other bidders emerge for Santos.

Woodside Petroleum was rebuffed in a bid for PNG LNG partner Oil Search Ltd two years ago, while ExxonMobil swallowed another PNG player, InterOil, this year, after trumping a bid from Total SA and Oil Search.

Santos’ biggest shareholder is China’s ENN Ecological Holdings Co, which together with private equity partner Hony Capital holds 15.1% of the group.

They have an agreement with Santos that they must accept any takeover recommended by the Santos board, as long as it is pitched above their average entry price into the company, but are not blocked from making a counter offer.

Harbour Energy was formed in 2014 by private equity firm EIG Global Energy Partners to make investments outside the US.

Earlier this year Harbour bought Shell’s UK North Sea assets with Chrysaor Holdings Ltd for US$3 billion, making it the largest independent oil and gas producer in the North Sea.

EIG has already invested in Australia, taking a 12% stake in junior gas producer Senex Energy.

If an AUS$11 billion bid for Santos emerges, it will be the biggest US offer for an Australian company ever and Australia’s second-biggest private equity buyout.

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