Harbour Energy needs to pay $7 a share to acquire Santos.
That's the view from Citi's analysts on Monday morning, who reckon a run in the oil price means the private equity bidder's $6.50 a share proposal no longer represents a knockout bid.
"We expect Harbour will likely need to sweeten its bid to ~A$7.00/shr to compensate shareholders for the recent increase in A$ oil price," the analysts said in a note to clients on Monday morning.
"We increase our target price to this level in anticipation of a forthcoming higher bid.
http://www.copyright link/content/dam/images/h/1/0/0/y/t/image.imgtype.afrArticleInline.620x0.png/1526259432321.jpg
Citi analysts value Santos at $7 a share. Anthony Macdonald (AFR)
"This is based on our calculations for how much the market's intrinsic value may have increased on a higher oil price assumption since the bid... If a deal closes, we think the timing would be early 2019."
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The comments come as Harbour Energy is due to wrap up due diligence and decide whether to put a formal offer to Santos' board. It is understood the bidder was given about six weeks inside Santos' data room.
Harbour Energy re-emerged with a $US4.98 a share ($6.50) bid in April, which included $US4.70 a share cash and a US28¢ a share special dividend.
The bid was high enough to get due diligence, but has yet to receive any recommendation from Santos' board or shareholders. The market's long-term oil price forecasts have since increased and so too, Citi reckons, has the market's "intrinsic value" has theoretically increased.
Santos chairman Keith Spence told shareholders only a fortnight ago that his company was mindful of the recent oil price rise. Spence said Harbour Energy and its partners were granted due diligence after it lobbed a bid the board was "not comfortable" rejecting.
"However, that is not to say that we, like you, don't see where the oil price is today as opposed to where it was then [in March] and that the company might not be worth a good deal more," Spence said at the company's annual general meeting.
Citi analysts reckon those comments could make it hard for Santos to recommend anything but a sweetened offer.
"If there is no sweetened bid, we think the board would be an impediment considering the Chairman has publically stated shareholders need to be compensated for higher oil prices," the analysts told clients.
Santos shares were up 9¢ to $6.29 on Monday morning.
Citi set its target at $7 a share, which is 5 per cent above Harbour Energy's indicative bid.
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Buyers (Bids)
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6 | 233123 | 6.910 |
9 | 295156 | 6.900 |
11 | 303505 | 6.890 |
4 | 129828 | 6.880 |
Price($) | Vol. | No. |
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