Talks on a merger between rival energy producers Woodside and Santos have ended, with the parties reportedly unable to agree on a valuation.
In the wake of the announcement, Santos shares fell by almost 9 percent while Woodside’s rose by 1 percent.
If it had gone ahead, the merger would have created a global business worth over $80 billion (US$52 billion), making it been the world’s fourth-largest listed LNG producer after Shell, ExxonMobil, and Chevron, with a market share of about 19 percent of Australia’s total gas output.
Woodside, which is more than twice as large as Santos in terms of market value and revenue, reportedly did not come up with a bid for the smaller company’s shares, after almost two months of due diligence and negotiations between the two.
Woodside chief executive Meg O'Neill said that the company conducts thorough due diligence on every opportunity with which it’s presented, and will only pursue transactions that add value for its shareholders.
Still Potential In LNG, Woodside Says
Santos said that after “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.”
Woodside issued a statement saying that, although the discussions did not result in a transaction, it considers that “the global LNG sector provides significant potential for value creation.”
The merger was being considered because the creation of a major global liquefied natural gas (LNG) producer could attract more offshore investors to a commodity seen as a key bridging fuel in the shift to cleaner energy.
Nonetheless, the deal was strongly opposed by some Woodside institutional shareholders.
“Woodside’s decision to walk away is a relief,” said Simon Mawhinney, chief investment officer at Allan Gray, which holds approximately $700 million of Woodside stock. The fund last week wrote to the gas producers’ management warning against pursuing a deal.
“We had hoped this would be the outcome,” Mr. Mawhinney said. “It was unclear to us where there was much merit in a tie-up.”
What Next for Santos?
Santos—Australia’s second-largest LNG producer after Woodside—said it would continue a months-long review into ways to unlock value for shareholders.In a statement, the Australasian Centre for Corporate Responsibility declared the merger “dead” and said it was time for a “new vision” for both companies.
“While consolidation is a common strategy in a declining market, that doesn’t mean every deal makes sense,” the centre’s special advisor Harriet Kater said. “In the case of Woodside and Santos, investors have struggled to see any strategic rationale for a merger.”
Last month, an Australian court found in favour of Santos after an environmental lobby group tried to stop construction of its $4.3 billion Barossa gas project off Australia’s northwest coast.
