Lending Association

Relief as Woodside-Santos merger falls through

The mooted merger between Woodside (ASX:WDS) and Santos (ASX:STO) was abandoned yesterday, eliciting relief more than anything else.

Santos shares closed down 5.8% (after being off more than 8% at one stage). They had risen 0.9% before the news to $7.94.

Woodside shares were up nearly half a percent, despite rising 2% after the 11:45 am announcement calling off the marriage.

The deal, promoted by some analysts and many in the media as a merger that would create an LNG giant, faced too many hurdles, including competing assets in and around Australia, Santos’ South Australian headquarters, and local laws blocking the company’s departure.

From Woodside’s perspective, the Santos link-up was not ideal. Woodside made it clear it saw no value in a merger with Santos for Woodside shareholders.

“Woodside has ceased discussions regarding a potential merger with Santos Ltd.

“As a global energy company, Woodside continuously assesses a range of organic and inorganic growth opportunities.

“Woodside CEO Meg O’Neill said that for every opportunity Woodside assesses, it conducts thorough due diligence and will only pursue a transaction that is value accretive for its shareholders.

“We continue to be disciplined in our approach to mergers and acquisitions and capital management to create and deliver value for shareholders. While the discussions with Santos did not result in a transaction, Woodside considers that the global LNG sector provides significant potential for value creation.

“Woodside’s world-class global portfolio, growth pipeline, and strong balance sheet underpin our attractive investment proposition for Australian and global investors.”

In effect, Woodside has conveyed that there was no value seen in a deal with Santos, which makes the Adelaide company somewhat of a pariah.

The deal, priced at $A80 billion, faced opposition from some Woodside shareholders, which could have led to an embarrassing outcome in shareholder votes.

Media reports suggest Santos is now ‘eyeing its options,’ although it should really be asking itself what stopped the deal from happening.

While Woodside sees the chance for a well-priced deal in the global LNG business, Santos does not share the same perspective. The US currently dominates the LNG market.

The weakness in Woodside’s shares in the afternoon suggests that investors are not interested in any sort of deal and want the company to remain independent.