The Oil Search Ltd (ASX: OSH) share price is in focus following reports a bidding war could erupt between the company and Santos Ltd (ASX: STO).
Santos lobbed a $23 billion confidential merger offer at Oil Search late last month.
The offer, and its rejection, was announced on Tuesday. Oil Search's board said the $4.25 scrip consideration – a 12.3% premium on the Oil Search share price as of 24 June – didn't appropriately value Oil Search's shares.
Santos is now expected to up its offer. But whether it will increase its consideration, or by how much, is yet to be seen. Additionally, some analysts are tipping the Oil Search board will battle against the merger.
Right now, the Oil Search share price is $4.08. That's 10.87% higher than it was at Monday's close after the company battled the fallout of its CEO's surprise departure.
Let's take a look at what's now expected of Santos' offer for the Papua New Guinea-based oil and gas producer.
Oil Search to enter a bidding war?
The Oil Search share price is on watch as the market waits to see if Santos will continue campaigning for control of the company.
Santos' offer would have seen the ASX 200 oil producers merged into one company, with Oil Search shareholders owning 37% of the resulting entity.
Woodmac senior analyst Daniel Toleman told The Australian the firm expects Oil Search won't submit to Santos' merger plans easily. He said:
At the current share price, the Oil Search board will likely believe that a merger with Santos would not provide full value to Oil Search shareholders. As a result, we expect the board to fight off the merger attempt.
However, Bernstein analyst Neil Beveridge, who was also quoted by The Australian, said a bidding war would likely harm the Oil Search share price.
For shareholders, attention is now focused on Oil Search and whether Santos will up their offer. We expect it will be competitive. However, a bidding war is the last thing investors will want.
MST Marquee analyst Mark Samter also spoke to the publication.
He said Oil Search should be wary of rejecting an increased offer. Samter said doing so could leave it down a CEO, numerous board members, and struggling to progress in Alaska. Such a situation would likely have dire consequences for the Oil Search share price.
Samter also spoke of Santos' CEO Kevin Gallagher, saying:
Having watched Kevin operate this past 5 or so years, I think it would be foolish of us to think he might not have a few nice little tricks up his sleeve.
Oil Search share price snapshot
Oil Search's shares have been performing well lately.
They are currently 8.22% higher than at the start of 2021. They have also gained 25.54% since this time last year.
The ASX 200 oil producer has a market capitalisation of around $8.4 billion, with approximately 2 billion shares outstanding.
