Australia's second-largest gas producer Santos said on Monday it intended to support an all-cash $18.7 billion takeover bid from an international consortium led by Abu Dhabi's National Oil Company (ADNOC), which wants to grow a global gas business.
ADNOC, through its investment arm XRG, with Abu Dhabi Development Holding Company (ADQ) and private equity firm Carlyle has offered $5.76 (AU$8.89) per Santos share, which was a 28 per cent premium to the Australian company's close on Friday.
Taking into account net debt, the deal gives Santos an enterprise value of AA$36.4 billion, which would make it the largest all-cash corporate buyout in Australian history, according to FactSet data.
It would be the third largest takeover ever in Australia, the data showed.
"For ADNOC, this is in line with their aggressive growth plans," said Kaushal Ramesh, Vice President, Gas and LNG Research, at Rystad Energy.
Santos shares rose 15 per cent in early trading Monday to AU$7.86, well below the offer price for the transaction, before tracking back to AU$7.81 mid-session.
Analysts said the stock was trading below the offer price as the deal risked not being approved by regulators in both Australia and Papua New Guinea.
The takeover bid emerged as oil prices reached multi-week highs as Israel and Iran traded air strikes, sparking concerns oil exports from the Middle East could be widely disrupted.
With Santos in its fold, the XRG-led consortium would gain control of two Australian liquefied natural gas operations - Gladstone LNG on the east coast and Darwin LNG in the north, as well as stakes in PNG LNG and the undeveloped Papua LNG. Santos' interests in Papua New Guinea are considered its most prized assets.
The company is also developing an oil project in Alaska, Pikka, due to start producing in mid-2026.
XRG said in June it aims to build a gas and LNG business with capacity of between 20 million and 25 million tonnes a year by 2035. Santos last year sold 5.08 million tonnes of LNG, with more than 60 per cent of that from Papua New Guinea.
"What ADNOC really wants is the LNG assets, since they are inside the Asia Pacific basin. Since their plan is to expand in LNG, they will want assets close to where the future of demand lies," Rystad's Ramesh said.
The takeover offer follows two previous proposals made by the consortium in March at $5.04 and $5.42 per share that were not made public.
"The Santos board confirms that, subject to reaching agreement on acceptable terms of a binding scheme implementation agreement, it intends to unanimously recommend that Santos shareholders vote in favour of the potential transaction, in the absence of a superior proposal," it added.
The XRG consortium said it was negotiating to carry out due diligence with Santos on an exclusive basis before formalising the offer which would need at least 75 per cent support from Santos investors.
"The proposed transaction is aligned with XRG's strategy and ambition to build a leading integrated global gas and LNG business," it said in a statement.
XRG, which was set up in November, last month acquired a stake in an offshore gas block in Turkmenistan. ADNOC has also struck several international deals for assets to sit under XRG, including gas and LNG interests in Mozambique.
Steep regulatory hurdles?
Santos said the deal required approval from Australia's Foreign Investment Review Board (FIRB), Australian Securities and Investments Commission (ASIC), National Offshore Petroleum Titles Administrator, PNG Securities Commission, PNG Independent Consumer and Competition Commission and Committee on Foreign Investment in the United States (CIFIUS).
XRG said it would maintain Santos' headquarters in South Australia, in a move to try and appease some regulators.
MST Marquee senior energy analyst Saul Kavonic said FIRB approval, "may be a major risk to the deal," as Santos controls significant critical energy infrastructure in Australia. Analysts at EP Capital also flagged the risk of securing approvals from Australia's offshore operations regulator and Papua New Guinea.
Kavonic said any spin-off of domestic infrastructure assets to potentially satisfy regulators would be difficult, as they are saddled with decommissioning costs.
The deal follows talks scrapped last year between Santos and its bigger Australian rival Woodside to create a possible AU$80 billion oil and gas giant. Santos walked away saying it would look for other ways to bolster its value.
Santos said in February its underlying annual profit fell nearly 16 per cent in 2024 and cut its dividend by 41 per cent.
While Santos has long been a takeover target, having rejected a $10.8 billion offer from private equity-backed Harbour Energy in 2018, Kavonic said a competing bid, "is very unlikely as only ADNOC may be willing to pay such a premium to realise their global LNG ambitions."
(Reporting by Scott Murdoch in Sydney and Emily Chow in Singapore, additional Shivangi Lahiri in Bengaluru; Editing by Kim Coghill and Sonali Paul)
