The explored US$53million merger between Australian heavyweights Woodside Energy and Santos is officially dead in the water.
A merger would have created an Australian energy giant with significant domestic and international oil, gas and liquefied natural gas operations including in Africa, Papua New Guinea and Mexico.
Woodside on Wednesday confirmed that it had ceased discussions regarding a potential tie-up with its gas focused compatriot.
Woodside chief executive Meg O’Neill said that for every opportunity Woodside assesses, it conducts thorough due diligence and will only pursue a transaction that is value accretive for its shareholders.
“We continue to be disciplined in our approach to mergers and acquisitions and capital management to create and deliver value for shareholders. While the discussions with Santos did not result in a transaction, Woodside considers that the global LNG sector provides significant potential for value creation.
“Woodside’s world-class global portfolio, growth pipeline and strong balance sheet underpin our attractive investment proposition for Australian and global investors,” she said.
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Referring to Woodside’s announcement to the ASX (Australian Securities Exchange), Santos said: “Following an initial exchange of information, sufficient combination benefits were not identified to support a merger that would be in the best interests of Santos shareholders.
“Santos has a clear strategy to deliver long-term shareholder value. We have a strong balance sheet and continue to review options to unlock value for shareholders.”
The Australian energy companies in December confirmed they were exploring a potential tie-up however both parties subsequently stated that negotiations were still at a preliminary stage and there was no certainty that any deal would be done.
Price had emerged as a major concern for Santos’ shareholders, who repeatedly called for a significant premium.
However, Woodside chief executive Meg O’Neill recently said that the precedent set by recent oil and gas deals in the US and Europe was for a “low to nil premium”, reported Reuters.
Last Thursday, fund manager Allan Gray Australia — which owns an approximate A$700 million (US$460 million) stake in Woodside and an approximate A$300 million stake in Santos — wrote to Woodside management, saying they should abandon the deal rather than paying a premium for its compatriot.
Allan Gray Australia managing, director Simon Mawhinney, told Reuters the letter spelled out how paying a premium for Santos would destroy value at Woodside and would not be in the best interests of its shareholders.
“We like both companies but it’s about relative value. Woodside shareholders would be diluted even at today’s share price,” Mawhinney said on 1 February.
“If they paid a premium, it would be even a greater dilution. We think they should walk away; we don’t think this transaction should happen.”
Woodside added that, as “a global energy company”, it “continuously assesses a range of organic and inorganic growth opportunities”.