(Bloomberg) – Abu Dhabi National Oil Co. dropped its planned $19 billion takeover of Australian natural gas producer Santos Ltd., walking away from an ambitious effort to expand overseas.
A “combination of factors” discouraged the company’s XRG unit from making a final bid, it said Wednesday. The decision was strictly commercial and reflected disagreement over terms, including on valuation and tax, people familiar with the matter said, asking not to be identified discussing private information.
It’s a notable retreat for XRG, the Adnoc spinoff that’s been looking to splash out billions to build up a global portfolio, particularly in the fast-growing liquefied natural gas market. Following deals for LNG supply in the US and Africa, the Santos acquisition would have given the group greater heft and access to Asia.
The company made its indicative offer in June with a consortium that included Abu Dhabi Development Holding Co. and Carlyle Group Inc. The board of Santos, Australia’s second-largest fossil-fuel producer, recommended the $5.76-a-share proposal, which represented a 28% premium to the stock price at the time.
But although the shares surged that day, they have remained below the offer price, potentially indicating investors were skeptical the consortium could land the deal. Santos extended an exclusivity period for a second time last month, saying the group had sought more time to complete due diligence and obtain approvals.
“The market will ask questions about Santos’ valuation after this,” Saul Kavonic, an energy analyst at MST Marquee, said by email. Investors may be wary about “any skeletons that may be lurking there, all the more so because XRG was a less price-sensitive buyer than most, yet still couldn’t make it work.”
See also: ADNOC seeks over $10 billion in financing for Santos deal
Investment program
Santos Chief Executive Officer Kevin Gallagher has rebuffed several approaches from peers over the last few years. He has spearheaded an aggressive investment plan to increase output by about 50% by the end of the decade, which at times has frustrated investors seeking higher returns instead.
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.
ADNOC and XRG said Wednesday they’re not done seeking M&A.
“XRG remains dedicated to pursuing value-accretive opportunities across gas and LNG, chemicals and energy solutions, and has a rich and deep pipeline of investment opportunities,” it said in a statement.
ADNOC is working on a deal to buy German chemical maker Covestro AG, though said this month that the planned takeover risks being torpedoed by a European Union competition probe.
