M&A News: Santos Stock Gains on $18.7B Takeover Bid from ADNOC-Led Consortium

Santos Limited (AU:STO) (STOSF), Australia’s second-largest producer of oil and natural gas, has received a $18.7 billion takeover bid from a consortium led by XRG, a subsidiary of Abu Dhabi National Oil Company (ADNOC), and including Abu Dhabi Development Holding Company (ADQ) and Carlyle. Santos’ Australia-listed stock rallied about 11% on the news.

The news of the proposed acquisition comes as oil prices surged due to the Israel-Iran conflict, triggering concerns about disruption in oil exports from the Middle East. The proposal follows last year’s failed talks between Santos and its larger Australian rival Woodside Energy (AU:WDS) to create a possible A$80 billion oil and gas giant.

ADNOC to Strengthen Gas Business with Santos Acquisition

ADNOC, through its investment arm XRG, has proposed to acquire Santos stock at $5.76 (AU$8.89) per share. This price marks a 28% premium to the Australian energy company’s closing price on Friday. Considering net debt, the deal assigns Santos an enterprise value of AU$36.4 billion, reportedly making it the largest all-cash corporate buyout and the third-largest takeover in Australia. Interestingly, back in June, XRG said that it aims to build a gas and liquified natural gas (LNG) business with an annual capacity of between 20 million and 25 million metric tons by 2035.   

Under the proposed deal, the XRG consortium would gain control of two Australian LNG operations, namely Gladstone LNG and Darwin LNG, as well as stakes in PNG LNG and the undeveloped Papua LNG. Notably, Santos’ interests in Papua New Guinea are considered its most vital assets. Santos is also developing an oil project in Alaska, Pikka, which is scheduled to commence production in mid-2026.

Interestingly, the latest bid follows two proposals made by the consortium in March at $5.04 and $5.42 per share that were not announced publicly. This time, Santos’ board, subject to reaching an agreement, intends to unanimously recommend shareholders to vote in favor of the proposed takeover.

According to Reuters, analysts think that Santos’ Australia-listed stock is trading below the offer price as there is a risk of the deal not securing an approval from regulators in both Australia and Papua New Guinea.

Is STOSF Stock a Good Buy?

Wall Street has a Strong Buy consensus rating on Santos Limited stock based on nine Buys and two Hold recommendations. The average STOSF stock price target of $4.81 indicates 9% upside potential.

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