Embattled Australian oil and gas producer Santos Ltd on Thursday rejected a A$7.1 billion ($5.1 billion) takeover proposal from a fund backed by the ruling families of Brunei and the United Arab Emirates.
Santos effectively put itself on the block in August, looking to sell assets in a bid to cut its A$8.8 billion net debt as its Gladstone liquefied natural gas (LNG) project begins operations amid a sharp slump in oil prices.
It said the bid from Bermuda-headquartered Scepter, pitched at a 26 percent premium to its close on Wednesday, was too cheap and included conditions that would hurt its consideration of asset sales and a wider strategic review.
"The Proposal is considered to be opportunistic in nature and does not reflect the fair underlying asset value of the company," Santos said in a statement to the Australian stock exchange.
Santos shares jumped as much as 20 percent on news of the bid, but were still worth only half as much as a year ago. The stock was trading at $6.28 at 0225 GMT, well below the proposed offer of A$6.88 a share.
Scepter had no immediate comment on the rejection, its head of merchant banking, Anthony Steains, said.
Two analysts said they thought shareholders would welcome the bid, given that the stock dipped below A$4 less than a month ago, but said valuations hinge on a long-term view of oil prices.
"It looks a fairly punchy price relative to value of the assets," said Bernstein analyst Neil Beveridge. "It looks to be a pretty decent bid."
Scepter, with offices in New York, London and Beijing, describes itself as a syndicate of ruling families, sovereign wealth funds and ultra-high net worth industrialists who have committed more than $14 billion to back large transactions.
Prince Abdul Ali Yil Kabier, a member of Brunei's ruling royal family, is a founder and director of the firm alongside financier Rayo Withanage. Other directors include Brunei's Prince Bahar Bin Jefri Bolkiah, the United Arab Emirates' Sheikh Juma al Maktoum, former HSBC chairman John Bond and former U.S. ambassador to Qatar Patrick Theros.
Incorporated this year, the management team is made up of several former directors of Blackstone Advisory Partners in Asia.
Santos' spokesman declined to comment on any other alternatives the company was considering or what conditions Scepter had sought in its bid sent on Oct. 20. Analysts and investors assumed one of the conditions was exclusivity.
While analysts said the offer was a full price relative to their valuations on Santos based on a long-term oil price around $75 a barrel, a top 10 shareholder said it made sense for the board to reject the bid.
"If you're prepared to auction off your assets, why would you offer someone exclusivity if they didn't offer a cracking (takeover) price?" said Jason Beddow, chief executive of Argo Investments, Santos' eighth largest shareholder.
Santos has stakes in oil and gas production in Australia, Papua New Guinea, Indonesia and Vietnam, with the jewel in its crown considered to be its 13.5 percent stake in the Papua New Guinea LNG project.
Analysts have said that stake alone could be worth more than A$5 billion, based on the value implied in a recent takeover bid by Woodside Petroleum for Oil Search Ltd, a bigger stakeholder in PNG LNG.http://www.reuters.com/article/2015/10/22/santos-ltd-ma-idUSL3N12L5TW20151022