The Santos Ltd (ASX: STO) share price will be on watch on Wednesday after the energy producer released an update on the Harbour Energy takeover offer after the market closed on Tuesday.
According to the release, Santos has rejected the US$5.21 per share (A$6.86 per share) takeover offer from Harbour Energy and terminated discussions.
The company’s independent directors and managing director unanimously resolved to reject the proposal on the basis that that it does not represent the full value of the company and is not in the best interests of shareholders.
Santos pointed to the 14% rise in Brent crude oil prices and the 18% average increase in the share prices of ASX-listed energy peers since the receipt of the indicative proposal as part of the reason why it rejected the offer.
Although Harbour Energy did increase its offer for Santos during this time, it was only a 4.6% increase.
In addition to this, management felt the final proposal was a highly leveraged private equity-backed structure that would have required Santos to provide significant support for Harbour’s debt raising and hedge a significant proportion of oil-linked production.
The Santos board believes it can create superior shareholder value through the execution of its existing strategy.
This strategy has already resulted in a significant improvement in its operating performance over the last two years and means that the company is expected to reach its 2019 net debt target of $2 billion more than a year ahead of schedule.
And finally, management believes its strong balance sheet has put the company in a position to resume its fully franked dividend in the near future.
Should you invest?
If there is a selloff related to the takeover rejection on Wednesday then I would be interested at the right price.
Especially if oil prices stabilise at these levels for the medium term. That should put Santos in a position to generate bumper free cash flows along with its peers Oil Search Limited (ASX: OSH) and Woodside Petroleum Limited (ASX: WPL).
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.