Papua New Guinea-focused Oil Search has rejected a merger proposal by Australia’s Santos which would create an LNG player worth up to $16.1 billion.
Oil Search, which has a stake in the ExxonMobil-led PNG LNG project and the planned Papua LNG development, said in a statement the offer was not in the best interests of its shareholders.
However, Oil Search agrees with Santos that there is strategic logic in a combination of the two companies but the terms of “any such combination need to be fair for Oil Search shareholders,” the firm said.
The rejected offer valued Oil Search at A$8.8 billion ($6.5 billion).
Australian LNG firm Santos made the approach on June 25. The company proposed to offer 0.589 new Santos shares for each Oil Search share held.
The ownership ratio implied a transaction price of A$4.25 per Oil Search share, based on Santos’ closing price on June 24. Also, this represented a 12.3 percent premium to the Oil Search closing price on June 24 of A$3.78 and a 9.8 percent premium to the Mubadala block trade sale price of A$3.865, according to Santos.
“Oil Search notes that, based on Friday’s closing share prices for Oil Search and Santos, the proposed terms represent a premium of only 6.8 percent despite Santos shareholders owning 70 percent more of the equity than Oil Search shareholders,” the ASX-listed firm said.
“Oil Search has communicated to Santos that it is open to receiving a revised proposal which more appropriately reflects the value which Oil Search would bring to any combined entity,” it said.
“Extremely attractive opportunity”
In a separate statement, Santos said it continues to believe that the merger proposal represents an “extremely attractive opportunity” to deliver compelling value accretion to both Santos and Oil Search shareholders.
“The potential merger is a logical combination of two industry leaders to create an unrivalled regional champion of size and scale,” the firm said.
The company would have a pro forma market capitalisation of A$22 billion ($16.1 billion) which positions the merged entity in the top-20 ASX-listed companies and the 20 largest global oil and gas companies, according to Santos.
Moreover, the combination would create greater alignment in Papua New Guinea supporting the development of key projects including Papua LNG, deliver new jobs and help support the local economy, the firm said.