Santos (ASX:STO) share price rises on revised merger proposal

Santos is seeking to create a mega oil and gas company…

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The Santos Ltd (ASX: STO) share price is up in early Monday morning trading. This comes after the energy producer announced a revised merger proposal with Oil Search Ltd (ASX: OSH).

On Friday’s market close, Santos shares finished the day down 1.07% to $6.45. At the time of writing, the price is 2.09% higher to $6.58.

Santos ups the ante

In today’s statement, Santos advised it has increased its offer to acquire all of the shares in Oil Search.

The non-binding and indicative merger proposal would see Oil Search shareholders receive 0.6275 new Santos shares for each Oil Search share held.

This follows an earlier proposal from Santos to acquire Oil Search shares last month. The offer of 0.589 per Santos share for every Oil Search share owned was rejected by the Oil Search board.

Under the revised proposal, Oil Search shareholders will own roughly 38.5% of the merged group, as opposed to 36.9% in the original offer. Santos shareholders will control the remaining 61.5%.

In monetary terms, the transaction translates to a price of $4.29 for each Oil Search share based on the closing price of Santos and Oil Search shares on July 19 (the day prior to disclosure of the first proposal). This represents a premium of about 16.8% for Oil Search shareholders.

Santos managing director and CEO Kevin Gallagher commented on the takeover offer:

It represents a compelling combination of two industry leaders to create an unrivalled regional champion of size and scale with a unique diversified portfolio of long-life, low-cost oil and gas assets.

The merged company would have strong cash generation from a diverse range of assets which provides a strong platform for sustainable growth and continued shareholder returns.

The Revised Merger Proposal represents an extremely attractive opportunity to deliver compelling value accretion to both Santos and Oil Search shareholders.

Next steps

Santos has granted due diligence access to Oil Search, subject to both parties entering a confidentiality agreement. In return, Oil Search has also permitted Santos to conduct its own due diligence on an exclusive basis. It is expected that this process will take approximately 4 weeks.

Once the due diligence is satisfactorily completed, the Oil Search board intends to unanimously recommend that shareholders vote in favour of the revised proposal. It believes the takeover will present Oil Search shareholders with the opportunity to become a part of the top 20 largest global oil and gas companies.

About the Santos share price

Since the start of the year, Santos shares have moved in circles. The company’s share price is up around 5% on the period. When looking at the past 12 months though, Santos shares have posted a gain of around 25%.

On valuation grounds, Santos has a market capitalisation of about $13.8 billion with more than 2 billion shares on its registry.

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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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