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By Keira Wright and Manuel Baigorri
Amid final negotiations to seal the $19 billion takeover of Santos Ltd., suitors led by Abu Dhabi National Oil Co. were alerted to media reports of a methane leak at one of the Australian producer’s operations. Less than three weeks later, the deal was dead.
The consortium was unsettled not to find out from the company, said people familiar with the timeline, asking not to be identified discussing confidential information. While other factors contributed to the collapse of the takeover bid — Santos’ third under Chief Executive Officer Kevin Gallagher — the dent to trust between the two sides dealt a body blow, they added.
The suitors, which also included Abu Dhabi Development Holding Co. and Carlyle Group Inc., were concerned about being saddled with clean-up costs at the liquefied natural gas project in the Northern Territory. Some felt blindsided — at a time when Adnoc’s young but high-profile XRG arm was already loathe to take unnecessary risks, the people said.
The wheels continued to turn, with extensions to the exclusivity period to allow for due diligence, even as union opposition grew more vocal. There were no interlopers or major disagreements over due diligence. A significant win had been to agree that Adnoc would compensate shareholders if regulatory approvals took longer than expected — a concession seen as a stepping stone to a binding agreement, some of the people said.
But details began to drag and the last two weeks were spent wrangling over the scheme implementation agreement to get the deal completed. The damage was done.
Read More: Santos Sheds $2 Billion in Market Value After Failed Sale
News of the demise of the deal — codenamed Emerald — was delivered in a formal letter and caught Santos completely unaware, the people said. It came without discussion, they added, moments before a formal announcement. Both sides had until recently been telling third parties that the deal could get completed.
The Australian group was expecting to iron out differences and had sent a letter to the bidders on Monday, setting out conditions that management saw as routine, the people said. These included a shareholder vote only after approval from the Foreign Investment Review Board and an agreement to develop and supply domestic gas, seen as key for Australian approval. Santos also wanted Adnoc to scrap demands that cash from the deal be withheld to cover potential tax claims in Papua New Guinea, where it saw little risk.
For Santos, these were basic requirements for a vast deal. For Adnoc, they proved final. The tax question came in late and added to risk.
Two days after those proposals were sent to the Adnoc-led group, the deal was over — five months after the initial approach was made in Perth, Western Australia. The next day, Santos shares tumbled, wiping $2 billion off the market value of the company.
Santos didn’t immediately respond to a request for comment. Adnoc declined to comment further and referred to XRG’s statement Wednesday.
— With assistance from Anthony Di Paola and Stephen Stapczynski
(Adds Adnoc comment in final paragraph.)
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