What: Trading in the shares of oil and gas major Santos Ltd (ASX: STO) has been halted on Wednesday to allow the company to conduct and complete the retail shortfall book build in connection with the retail component of Santos' fully underwritten 1 for 1.7 pro rata renounceable entitlement offer which was priced at $3.85 per new share.
So What: According to news reports the retail component failed to be well supported with a significant proportion of the stock required to be sold through the book build process.
In another example of the disadvantage retail investors find themselves at compared with their institutional (insto) counterparts, the insto entitlement offer occurred in early November when the share price was at $5.91. By the time the stock entered a trading halt to conduct the retail book build the share price had sunk to just $4.06 a share.
In other words, the opportunity to profit from an arbitrage opportunity and likewise the attractiveness of the entitlement offer was vastly diminished for retail shareholders.
Now What: In a similar way to its peer Oil Search Limited (ASX: OSH) which has rejected a merger proposal from Woodside Petroleum Limited (ASX: WPL), the board of Santos has rejected a takeover approach from Scepter Partners that was priced at $6.88 per share.
Right now, that offer price must be looking pretty appealing to Santos' shareholders, however, in the longer-term, assuming a partial recovery in the oil price, even the $6.88 offer may look like a low-ball offer.
While the longer term outlook for the stock is arguably positive and the potential for further merger and acquisition activity a very real possibility, shareholders should brace themselves for more selling pressure when the stock exits its trading halt on Friday as some shareholders will look to lock in a gain no matter how slim their retail entitlement allocation.
