OSH +6.27%, STO -4.98%: This morning Santos (STO) confirmed that on 25 June it submitted a merger proposal to OSH where Oil Search shareholders would receive 0.589 new Santos shares for each OSH share held. This represented a 12.3% premium to the Oil Search closing price on 24 June of $3.78 and if they went for it, Oil Search shareholders would own 37% of the merged group and Santos shareholders would own 63%. That ratio implied a transaction price of $4.25 per Oil Search share, based on Santos’ closing price on 24 June. OSH has rebuffed the offer however left the door open saying they can see the strategic rationale of the merger for both parties, however they want a bigger slice of the pie. We think the deal makes sense, however importantly, we also think OSH needs STO more than STO need OSH.
If it did happen, the new entity would look like this:
- Market cap of ~22b which positions the merged entity in the top-20 ASX-listed companies and the 20 largest global oil and gas companies
- Diversified portfolio of long-life assets across Australia and Papua New Guinea in oil, gas and LNG
- Balance sheet with strong liquidity that can self-fund growth options and an investment grade credit rating
- Opportunity to create value on day one from synergies and expected re-rating in share prices
We are bullish both STO & OSH from current levels
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