Why the Oil Search (ASX:OSH) share price is roaring 5% higher today

Santos shareholders will be jumping for joy.

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The Oil Search Ltd (ASX: OSH) share price is starting the week off with a bang today. This comes after the oil and gas company received a revised takeover bid by fellow energy producer Santos Ltd (ASX: STO).

At the time of writing, Oil Search shares are exchanging hands for $4.02, up 5.51%.

Oil Search receives higher offer

Following the company’s latest update to the ASX, investors are fighting to get hold of Oil Search shares.

According to the release, Oil Search advised it has received an improved non-binding indicative merger proposal from Santos.

Under the new offer, Santos put forward a deal to acquire all of Oil Search’s shares. The transaction implies a consideration of 0.6275 new Santos shares for every Oil Search share held.

This is superior to last month’s proposal, in which Oil Search was offered 0.589 of Santos shares for each Oil Search share owned. The Oil Search board unanimously rejected this.

Under the revised bid, Oil Search shareholders would hold an approximate 38.5% stake of the merged group. Santos shareholders will retain the remaining 61.5% interest.

The renewed proposal translates a transaction price of $4.52 per Oil Search share. This is based on the closing price of Santos shares on 24 June (the day before submission of the first proposal). Compared to that date, a 19.7% premium applies to the last closing price of Oil Search shares.

What’s next for the agreement to proceed?

Both parties will conduct due diligence on each other, subject to a confidentiality agreement. This will enable Oil Search and Santos to do their research and ensure the proposed merger is feasible. This process will take around four weeks to complete.

If this is successful, the Oil Search board recommends its shareholders to vote in favour of the revised proposal. It notes that the merged group will become the ASX’s largest oil and gas company and top 20 global player. In essence, this would give the super-company a diversified portfolio of long-life and low-cost assets with significant growth options.

Oil Search share price snapshot

Over the last 12 months, Oil Search shares have accelerated to post a gain of almost 38%. Year to date, however, the company’s share price is tracking just 8% higher.

Oil Search presides a market capitalisation of roughly $7.92 billion.

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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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