(Adds background on deal, reasons for rejection)
May 22 (Reuters) - Australia's Santos (STO) said on Tuesday it terminated discussions with Harbour Energy and rejected the U.S.-based company's final takeover offer of $10.8 billion, saying it undervalues the oil and gas producer as oil prices surge.
Harbour made a final offer for Santos this week, hiking its bid for a fifth time in nine months after a steep rise in global crude oil prices.
"(The board) resolved to reject the final proposal on the basis that it does not represent a full value of the company and, when combined with the associated risks, is not in the best interests of Santos shareholders," Santos said in a statement.
Santos said both Brent oil and the share prices of its Australian Securities Exchange-listed energy peers have risen since Harbour made an indicative proposal on April 3.
Oil prices LCOc1 have risen about 17 percent since Santos received Harbour's initial $4.98 per share offer in April.
Citing other drawbacks to the offer, Santos said Harbour's final offer was highly leveraged on private equity, and that Santos would have to provide fundraising support to Harbour and hedge a large part of its oil-linked production.
The deal would also be subject to approval by Australia's foreign investment regulator.
