Ann: Santos rejects Harbour proposal and terminates discussions, page-55

They may have to raise capital again before they pay a dividend, according to The Australia (sigh). Makes me wonder. I’m glad to see them hit decent free cash flow, although that is entirely reliant on the POO going forward. I get a better return at S32 which has more cash flow, is a diversified miner and is paying a decent dividend as well as an on market buy back. Just saying, I hold both anyway.



Santos play for Quadrant Energy behind spurning of $14.5bn Harbour Energy bid

Santos’ Gladstone liquefied natural gas project in Queensland.


Santos is putting together a $3 billion bid for Quadrant Energy and the prospective debt-laden deal was a major reason for its rejection of Harbour Energy’s $14.5 billion bid.

DataRoom understands that Santos has approached banks to put together a funding package to help buy the West Australian energy company’s assets.

The deal would also be reliant on Santos (STO) carrying out a major rights issue and taking on a large package of debt, even though that was a sticking point in its Harbour Energy discussions.

Santos chairman Keith Spence is reportedly keen to capitalise on the company’s bolstered share price which has risen sharply since Harbour emerged as a potential buyer earlier this year.

Mr Spence is expected to face pressure today to explain to major shareholders the reasons for Santos knocking back the $US5.21 per share bid which was supported by a number of institutions.

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• Santos rejects $14.5bn bidSCOTT MURDOCH, MATT CHAMBERS

Santos’s two largest shareholders, ENN and Hony Capital, had backed the bid and joined a consortium with Harbour.

Mr Spence was a major opponent of the deal since it was made and reportedly at odds with the rest of his board.

DataRoom had been told that Santos CEO Kevin Gallagher had supported the bid but in a statement last night he said he believed that it was in the company’s best interest not to proceed.

The reaction of Santos’s shareholders to being hit up to support the company taking on a large parcel of debt is going to be interesting. Investors will have to weight up the risks of the debt injection versus the premium that was on offer from Harbour.

The Santos board criticised Harbour for wanting to increase the leverage in the company, but now seemingly will follow a similar course of action.

The role of Mr Spence in the decision to knock back Harbour’s action is also expected to be closely examined by the company’s major shareholders.

DataRoom understands that Harbour believed a deal had been struck across the weekend, but that agreement had been reneged upon yesterday when Santos announced its decision to the ASX.

Quadrant Energy’s future ownership structure has been in question, with Macquarie and Brookfield at odds over its current joint venture.

Citi has been trying to find a buyer for Brookfield’s 48 per cent stake while Macquarie is keen to remain an owner. Brookfield has put a $1.5 billion price tag on its stake.

Quadrant is made up of assets mainly in the Exmouth and Carnarvon basins off the coast of northwestern Australia and is the largest single contributor to the WA domestic gas market.

The company had been expected to list on the ASX but the deal was shelved earlier this year following volatile market conditions.

Santos is expected to revive its potential bid for Quadrant now, with Harbour expected to walk away from any future moves.

In April, Santos had released a Request for Proposals to commercial banks to put together funding packages to help pay for a bid.