Why the Santos (ASX:STO) share price is edging lower today

The company's shares are slipping after an update on a proposed merger.

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The Santos Ltd (ASX: STO) share price is heading south on Monday morning. This comes after the energy giant provided an update on its proposed merger with Oil Search Ltd (ASX: OSH).

At the time of writing, Santos shares are swapping hands for $6.17, down 1.28%.

worker in hard hat at an oil refinery

Image source: Getty Images

What's sending the Santos share price lower?

In today's release, Santos advised it has agreed with Oil Search to extend the due diligence period for another week.

Early last month, Santos increased its offer to acquire Oil Search shares under a revised merger proposal.

The offer put forward for Oil Search shareholders to receive 0.6275 new Santos shares for each Oil Search share held. This is a slight increase from the earlier rejected proposal that presented 0.589 per Santos share for every Oil Search share owned.

As a result, 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).

While exclusive mutual due diligence is being conducted, both companies have until 13 September to proceed on the deal.

If successful, the Oil Search board will recommend its shareholders to vote in favour of the revised merger proposal.

Both Santos and Oil Search are pushing to become the ASX's largest oil and gas company and a top 20 global player.

The super-company would effectively hold a diversified portfolio of long-life and low-cost assets with significant growth options.

No doubt this could have a positive effect on the Santos share price in the future.

About the Santos share price

The Santos share price has been moving in circles in 2021, slipping 4% over the last 9 months. While generally flat for the period, when looking from this time last year, the company's shares have gained almost 18%.

On valuation metrics, Santos commands a market capitalisation of roughly $13 billion, with more than 2 billion shares outstanding.

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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