Banks muscle in on Harbour Energy as Santos deadline looms
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Bankers and lawyers are busily running around for Harbour Energy's Linda Cook, who has access to Santos' data room for about another fortnight. Supplied
It's down to the short strokes as Harbour Energy seeks to shore up its
$13.5 billion bid for Santos.
Harbour Energy boss Linda Cook has had her lawyers and bankers trawling through Santos' data room for close to a month now, and it is understood she has another fortnight before Santos is due to shut off access and ask for a binding bid.
From all reports, Harbour Energy's diligence is on track. Nothing that could kill the deal has been found to date.
Much of the action is said to be taking place in the United States, where Harbour Energy's financiers JPMorgan and Morgan Stanley are putting the final touches on a $US7.75 billion ($10.3 billion) debt package, as promised. The debt cheque is by far the biggest component of the deal.
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The investment banks are also doing their best to bat away interest from rivals, who are seeking to grab a late slice of the deal. Goldman Sachs is believed to be among the banks vying for a role, although it is not alone.
The investment banks are no doubt encouraged by a run in the oil price, which has been up as much as 10 per cent since Harbour Energy presented the bid on March 29.
It should make it easier for their own lending committees to sign off on the deal, and the banks to syndicate the debt in the future, should it get that far.
The rising oil price has helped drive Santos shares to as high as $6.28 last week. It's long been traded as a proxy to the oil price.
However, Santos is expected to point out to shareholders that its shares have not been as strong as some of its listed rivals in recent weeks. It will meet investors for its annual general meeting on Thursday, and is believed to have been sharpening its defence ahead of the occasion.
The currency has also moved in Santos shareholders' favour. Harbour Energy offered $US4.98 a share, including $US4.70 from the suitor and another $US28¢ from the company's coffers. That $US4.98 was worth $6.50 on March 29, and is now worth $6.63.
The question is whether Santos' board can use a short term spike in the oil price to push its bidder for a higher offer. The board - advised by Deutsche Bank, Rothschild and JB North - liked the look of $US4.98 four weeks ago and has not had to think too much about it since.
It is expected to broach the topic again when and if Harbour Energy produces a binding bid. You would have to think both sides were taking a long term view on the oil price when due diligence was granted a month ago and recent movements wouldn't sway their thinking too much.
Santos shareholders would obviously like more - but it may be out of their hands. The wildcard on the register is Santos' two biggest investors; China's Hony Partners and ENN.
The deal was designed for them to roll into the privatised Santos.
Interestingly, ENN's representative on the board, Eugene Shi, is up for re-election at Thursday's AGM.
Of course the biggest risk to the deal remains Foreign Investment Review Board approval. Despite plenty of movement behind the scenes, it is something neither side is willing to declare as a certainty, at least at this stage.
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