Takeover bid coming from Linda cook?, page-87

Here is the Morningstar commentary regarding today's announcement. I don't know how accurate the predictions are but I enjoy reading most of their posts because they have heart... 'This is no tin-pot-cobbled-together' and 'awaken any number of interested parties from a slumber' are my favourite.  I hope I am not breaking terms/conditions by sharing this. Overall they are bullish but if we don't hear any news of new bids soon and price of oil keeps coming down, the SP will drop. But considering a bid of 4.55 was made when the price of oil was significantly lower than this should mean the SP will not drop too far.


Santos confirmed it received a confidential cash takeover proposal from Harbour Energy in August 2017, contemplated to be undertaken via scheme of arrangement. It says the board deemed the indicative price of AUD 4.55 per share as too low and the source of funding too uncertain. It rejected the approach and says there are no formal offers on the table or discussions under way. But as we all know, where’s there’s smoke there is generally fire. Harbour Energy is a consortium of global energy investors led by ex-Shell executive Linda Cook. This is no tin-pot cobbled-together outfit, and it is quite possible a formal offer could be tabled soon. An opening offer is rarely the best or last and action could also awaken any number of interested parties from a slumber--think Woodside Petroleum for starters.

Santos shares have risen 12% to AUD 4.90 on the news, a 7.5% premium to the rejected offer, but still a 15% discount to our unchanged AUD 5.75 fair value estimate. Our fair value necessarily ignores the synergies an individual bidder may enjoy in support of a takeover premium, but our Hold or 3-star zone does run to AUD 6.60, a 15% premium to fair value. If the Harbour bid does genuinely go away, expect a near-term price retreat. But if an offer is tabled, a bidding war might just be the catalyst for our fair value being met or even exceeded sooner than expected. Santos represents a high-calibre LNG infrastructure and resource foot-hold, freight-advantaged into premium Asian energy markets, in a stable fiscal regime. At fair value, who wouldn’t want it!

Santos’ rejection response is predictable given its behaviour in the recent past. In October 2015, a AUD 6.88 bid by Scepter Partners, with apparent Dubai and Brunei oil backing, was knocked back on the basis it undervalued the assets. The effective AUD 14.5 billion enterprise value implied by that bid sits at a meaningful 12% premium to one supported by a AUD 4.55 share price.