Adnoc makes $19 billion takeover bid for Australia’s Santos

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Abu Dhabi National Oil Co. made a $18.7 billion offer for Australian fossil fuel producer Santos Ltd., the latest move by the Middle Eastern company to expand production of liquefied natural gas.

The bid is one of the biggest yet by Adnoc’s investment unit, which has been targeting LNG as the traditional oil producer joins peers including Saudi Aramco in increasingly tapping one of the fastest growing fossil fuel markets. Santos has stakes in major production facilities in Australia and Papua New Guinea.

Adnoc made two previous offers in March, Santos said. Chief Executive Officer Kevin Gallagher has rebuffed several approaches from peers over the last few years, and has come under fire from impatient investors who want to extract more value out of Australia’s second-largest fossil fuel producer.

“Credit to Gallagher for extracting such a premium offer – he will have earned the payout of his ensuing incentives in doing so,” Saul Kavonic, an energy analyst at MST Marquee, said in a note. “Gallagher has found his escape parachute and it’s made of gold.”

The consortium led by Adnoc’s investment arm XRG PJSC also includes Abu Dhabi Development Holding Co. and Carlyle Group Inc. It offered $5.76 (A$8.89) for each Santos share, a 28% premium to the closing price on Friday. The company’s board intends to unanimously recommend the bid to shareholders.

Santos shares rose as much as 15% on Monday, their biggest intraday jump since April 2020, and were at A$7.805 at 11:53 a.m. in Sydney.

Gallagher has spearheaded an aggressive investment plan to increase output by about 50% by the end of the decade, which at times had frustrated investors who wanted higher returns. That strategy appears to have paid off, as Adnoc sought a company with a high growth potential.

“Adnoc’s XRG is paying a premium to enter the global LNG game,” said MST Marquee’s Kavonic. XRG is on the hunt for gas and chemicals deals as it targets an $80 billion enterprise value.

“The proposed transaction is aligned with XRG’s strategy and ambition to build a leading integrated global gas and LNG business,” the Adnoc unit said in a statement. The company plans to “invest in Santos’ growth and further development of its gas and LNG focused business,” it said.

Still, the deal may struggle to win approval from Australia’s Foreign Investment Review Board as Santos is a major domestic gas supplier, Citigroup Inc. analysts including Paul McTaggart said in an emailed note.

Santos has long been an attractive target for rivals. In 2018, the Adelaide-based company rejected multiple offers from US-based Harbour Energy Ltd., while talks with Woodside Energy Group Ltd. broke down last year. Some investors have urged Santos to split its coveted LNG assets from oil operations in Alaska and its domestic gas business in Australia to cash in on higher valuations.

Goldman Sachs Group Inc. and JB North & Co. are acting as financial advisers to Santos; Rothschild & Co. is acting as independent board adviser. The Abu Dhabi consortium has engaged JPMorgan Chase & Co. as its adviser.