Santos (ASX:STO) share price climbs as Oil Search merger confirmed

The new company will have a value of $21 billion

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Two miners wearing hard harts shake hands over a business deal, representing the news announced today that Worley has won a contract from Santos

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The Santos Ltd (ASX: STO) share price is rising today. That's after the company confirmed itself and Oil Search Ltd (ASX: OSH) have come to an agreement to merge.

At close of trade yesterday, shares in Santos were $6.03 and Oil Search shares were $3.65. At the time of writing, the Santos share price is up 0.91% to $6.08 while Oil Search shares are up 2.47% to $3.74.

Let's take a closer look at today's news.

What's driving the Santos share price?

Here are the specifics of the deal that is heating up the Santos share price:

  • The transaction will be all scrip. Oil Search shareholders will receive 0.6725 Santos shares for each Oil Search share they own.
  • Once completed, Oil Search shareholders will own approximately 38.5% of the new company and Santos's shareholders will own about 61.5%.
  • Given the last Santos share price and 2.08 billion Oil Search shares outstanding, today's deal values Oil Search at about $8.43 billion or $4.06 per share. This is an 11.2% premium on the previous share price.
  • The combined value of the new company will be approximately $21 billion, according to the statement.
  • The deal is still subject to shareholder approval, regulatory approval and approval from Papua New Guinea courts.

Management commentary

Speaking about the news which could be affecting the Santos share price, Santos chair Keith Spence said:

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

The merged entity will be well positioned for success in the new era of oil and gas, with strong cash-flow generation from a diverse range of assets providing a platform to self-fund growth and deliver shareholder returns.

Oil Search chair Rick Lee added:

Put simply, this merger provides Oil Search shareholders with a compelling opportunity to participate in a larger entity with significant scale, product mix, ESG and geographic diversity, and access to capital. The combined entity will have the capacity to deliver on an exciting pipeline of organic growth opportunities.

What happens now?

The new company will be led by Santos managing director and CEO Keith Gallagher. PNG courts will hold hearings on the deal by the end of October and, if all goes to plan, the new company should come into existence by 16 December this year.

According to the statement, the merger will result in synergies, pre-tax, of "US$90-115 million per annum (excluding integration and other one-off costs) creating value for both sets of shareholders".

Santos share price snapshot

Over the past 12 months, the Santos share price has increased by about 19%. Year-to-date, however, the share price has fallen around 5%.

Motley Fool contributor Marc Sidarous 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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