What happened?
Santos Ltd (ASX: STO) share price has plunged an incredible 31% this month after returning from a trading halt in which the company announced a massive shake-up of its debt pile.
Why?
The share price fell because the company announced a $3.5 billion capital raising involving the sale of its interest in the Kipper gas field ($520 million), a private placement of shares ($500 million) at $6.80 to China's Hony Capital, while $2.5 billion would be raised via a fully underwritten accelerated 1-for-1.7 entitlement offer priced at $3.85 a share.
The share price immediately dropped to the retail entitlement offer price of $3.85 and has struggled to break meaningfully higher since.
What's next?
Santos has hired current Clough CEO Kevin Gallagher to take over the chief executive chair as of early 2016 and remains exceptionally cheap, when it's considered that the shares were trading as high as $12.50 in the last 12 months.
Santos shareholders will be ruing a lost opportunity or be potentially outraged at the company's management who refused to raise capital until far too late and didn't appear to seriously consider a takeover offer made earlier in the year.
A takeover opportunity?
In hindsight, I can't believe that I was seriously considering taking a stake in the company with the share price at $12 earlier in the year.
Santos remains in a similar position to Fortescue Metals Group Limited (ASX: FMG), in that it has a huge amount of debt, isn't the lowest-cost producer, and is struggling for options going forward.
Perhaps a sale of both, as a package deal, could be arranged to a suitable bidder? Either way it's doubtful that shareholders will generate long-term outperformance or consistent dividends from either.
