Why the Oil Search (ASX:OSH) share price is leaping out of the trading pause

It’s been a big year for mergers and acquisitions on the ASX.

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The Oil Search Ltd (ASX: OSH) share price is up 2.74% after exiting this morning’s trading pause. This comes after the company reported it has entered into a definitive agreement to merge with fellow ASX energy share Santos Ltd (ASX: STO) in an all-scrip transaction.

Both the Santos and Oil Search share prices were temporarily frozen earlier today at the companies’ request, pending today’s announcement.

News of a potential merger between the 2 oil and gas companies first came to light on 20 July. At that time, Oil Search rejected the initial merger proposal.

What are the terms of the merger?

If the merger passes the remaining regulatory hurdles, including approval from shareholders and the Papua New Guinean courts, then Oil Search shareholders will receive 0.6275 new Santos shares for each Oil Search share they own.

This is in line with the revised merger terms released to the market on 2 August.

Once the merger is complete, Oil Search shareholders will own 38.5% of the new combined company, which is forecast to have a market cap of $21 billion.

Santos forecasts the merger could result in “pre-tax synergies” of US$90–115 million per year once integration costs are settled.

The combined companies will have a balance sheet with more than US$5.5 billion of liquidity.

Commenting on the merger, Oil Search chairman, Rick Lee said:

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.

The merged company will be headed by Santos CEO, Kevin Gallagher, who said:

Santos and Oil Search will be stronger together and will have increased scale and capacity to drive a combined disciplined, low-cost operating model and unrivalled growth opportunities over the next decade.

Following the merger, three non-executive directors from Oil Search will join the Santos Board. Santos will maintain its head office in Adelaide.

The Oil Search Board has unanimously approved the transaction.

Oil Search share price snapshot

The Oil Search share price is down 0.53% in 2021 compared to a 10.5% gain for the S&P/ASX 200 Index (ASX: XJO). Over the past month, Oil Search shares have dropped 3.48%.

At the time of writing, the Oil Search share price is $3.75.

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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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