Post by : Naveen Mittal

Santos Faces Setback as $18.7 Billion Deal Collapses

Santos, Australia’s second-largest gas producer, saw its stock slump after a $18.7 billion takeover deal led by ADNOC’s overseas arm, XRG, collapsed. The deal, which could have become the biggest all-cash corporate buyout in Australian history, was called off due to disagreements over tax responsibilities tied to Santos’ assets in Papua New Guinea.

While this marks the third failed takeover attempt in seven years, many investors and analysts believe Santos is still in a strong position, thanks to its promising gas and oil projects in Australia and Alaska.

Why the Deal Fell Apart

The takeover talks began in June, with an offer of $5.76 per share for Santos. After adjusting for dividends, the bid came to $5.626 per share, valuing the company at around A$36.4 billion ($24.2 billion), including net debt.

However, complications arose when it was revealed that capital gains tax payments worth several hundred million dollars were due on Santos’ Papua New Guinea assets. Santos expected the buyers to shoulder this cost, but the XRG-led consortium objected.

Unable to reach an agreement, XRG walked away from the deal, stating that “a combination of factors” had changed its assessment of the bid.

Market Reaction

Following the news, Santos shares fell to A$6.61, their lowest since June 10, making it the company’s worst trading day in more than five years. The broader market index, S&P/ASX200, also slipped, but the sharpest hit was felt by Santos itself.

Interestingly, some investors were not entirely disappointed. Portfolio managers like Andy Forster of Argo Investments urged Santos to focus on managing its core business rather than chasing takeover deals. Others, like Romano Sala Tenna from Katana Asset Management, said they were relieved the company would not be breaking up assets during what could be a strong growth period.

Bright Spots Ahead

Despite the failed deal, Santos is entering an important phase. Two major projects are nearing production:

• Barossa Gas Project off northwestern Australia.

• Pikka Oil Project in Alaska.

Both projects are expected to generate strong cash flows, which could boost shareholder returns and strengthen the company’s long-term outlook.

However, questions remain about Santos’ delayed projects such as the Narrabri gas project and the El Dorado oil and gas project in Australia. Analysts are watching to see if the company will revive these plans.

Analysts Weigh In

Some analysts warn that repeated failed deals create doubts in the market about Santos’ future. Adam Martin from E&P noted that another collapsed transaction makes investors question whether Santos can continue in its current form.

Santos has previously:

• Rejected a $10.8 billion bid from Harbour Energy in 2018.

• Walked away from merger talks with Woodside Energy, which could have created an A$80 billion oil and gas powerhouse.

Despite these missed opportunities, Santos’ leadership remains confident. Chair Keith Spence emphasized: “Santos has a clear strategy, strong leadership and high-quality growth opportunities. The board is confident these strengths will deliver long-term value for shareholders.”

Still, investment bank Jarden downgraded its rating on Santos from overweight to underweight and lowered its 12-month price target from A$8.40 to A$7.05 per share.

The Bigger Picture

For Santos, the collapse of this mega-deal is both a setback and an opportunity. On one hand, it raises concerns about the company’s attractiveness to global investors, especially after multiple failed takeover attempts. On the other hand, it gives Santos the chance to focus on delivering results from its major projects and demonstrate its ability to generate shareholder value without outside buyouts.

The company’s future will largely depend on how effectively it can bring its Australian and Alaskan projects into production and manage challenges around its deferred projects.

Conclusion

The collapse of the $18.7 billion ADNOC-led takeover has left Santos at a crossroads. While the failed deal triggered a sharp stock drop and renewed doubts in the market, many investors remain hopeful that Santos’ upcoming projects will strengthen its position.

With strong leadership, valuable assets, and projects close to completion, the company still has the potential to bounce back and prove its long-term worth. The coming months will be critical in showing whether Santos can turn this setback into a fresh start.

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