US private equity group Harbour Energy wants Santos Ltd (ASX: STO) bad! The acquirer upped the ante yet again by offering to pay up to $7 a share to buy Santos.
This equates to roughly another $750 million in the pockets of shareholders, and that's before including the franking credits for those who qualify!
Who needs a competing bid when you have such a seemingly eager buyer?
I think the new bid will make it a lot tougher for Santos' board to reject Harbour Energy's marriage proposal although it feels as though the bidder didn't think through its previous offer enough.
The last time Harbour Energy put its cards on the table was last Thursday when it said it would only pay US$4.98 a share for Santos. I thought that deal would leave shareholders feeling short changed and the suitor must have come to the same conclusion over the weekend.
Harbour Energy is now offering to cough up US$5.21 a share, or $6.95 if using a US75 cents exchange rate. If Santos were to undertake additional hedging on its oil-linked production in 2018 and make changes to its 2019 hedging strategy.
Further, the bidder will sweeten the deal further by offering $7.00 a share if management went as far as to hedge 30% of Santos' production in 2020.
It sounds like Harbour Energy is willing to peg its best offer in Australian dollars, thus removing the exchange rate risks for local shareholders. Removing a fixed exchange rate that was in one of Harbour Energy's earlier bids was a mistake in my view.
The improved offer looks a lot more credible to me as it comes within the $6.80 to $7.20 per share price range that some brokers were suggesting as a fair bid.
I can see a bit more room for Harbour Energy to up its offer, especially if the Australian dollar continues its downtrend against the US currency, and given the eager acquirer's history of bidding against itself for Santos, one cannot rule another revised offer coming through.
The bid is conditional on a several standard clauses that were outlined in last week's proposal and Santos' board is studying the new proposal before making a recommendation to shareholders.
The bright outlook for oil and the US dollar means we are likely to see other merger and acquisition (M&A) activity in the sector, which may include Woodside Petroleum Limited (ASX: WPL) and Oil Search Limited (ASX: OSH).
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