(Bloomberg) -- Scepter Partners, whose A$7.14 billion ($5.15 billion) offer for Santos Ltd. was rejected Thursday, lined up the oil and gas producer’s former leader John Ellice-Flint to run the company, people familiar with the matter said.
The investment firm backed by Asian and Middle Eastern royalty is considering its options after its A$6.88 a share offer was rejected, according to the people, who asked not to be identified as the information is private. Adelaide-based Santos said the bid, priced at a 26 percent premium to Wednesday’s close, was too low and “opportunistic.” Santos jumped as much as 21 percent Thursday.
Speculation Santos was a target emerged in August when the company began a review amid a plunge in crude prices and Chief Executive Officer David Knox said he would step down. Santos’s main assets include a 13.5 percent stake in Exxon Mobil Corp.’s $19 billion liquefied natural gas venture in Papua New Guinea and the $18.5 billion Gladstone LNG project in Australia.
“There is pressure on Santos to source additional capital to reinforce its balance sheet,” Adrian Prendergast, an analyst at Morgans Financial Ltd. in Melbourne, said by phone. “Scepter are capable of taking a medium term bullish view on energy and recognize that under that scenario, A$6.88 is a steal if they can grab control.”
Santos, which had net debt of A$7.5 billion at the end of 2014, said in August that various groups had approached it about its assets and other “strategic opportunities.” The Scepter bid is indicative, highly conditional and non-binding, Santos said Thursday.
Ellice-Flint, who led Santos from 2000 to 2008, would return as executive chairman should Scepter’s bid succeeds, the people familiar with the matter said. The executive, who is currently chairman of Brisbane-based Blue Energy Ltd., was replaced by Knox.
Santos, which lost more than half its market value in the year to Wednesday, surged as much as A$1.12 today, giving it the biggest percentage gain since March 1986. The shares were 96.5 Australian cents higher at A$6.405 at 3:30 p.m. Sydney time. Brent crude oil, used as a benchmark for energy prices, has slumped 43 percent in the past year.
“The alternative for shareholders is pretty unappealing,” Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co., said by phone. “Asset sales are clearly difficult at this point in the cycle and an equity issuance will be dilutive, so there’s not really a great Plan B for Santos shareholders if they walk away from this.”
As oil plunged, takeover offers for energy companies surged 70 percent this year to $303 billion, according to data complied by Bloomberg. The average premium for deals announced in 2015 was 41.9 percent, the highest in more than a decade, the data show.
Rayo Withanage, who co-founded wealth management firm BMB Group Ltd. to invest money from Middle Eastern royals, formed Scepter in May. Scepter, which has offices in New York, London and Beijing, is an investment syndicate advised by a group of former executives from Blackstone Group LP’s Asia advisory team including Anthony Steains, according to its website.
The Scepter syndicate investors include Asia and Gulf-based ruling families, ultra-high net worth industrialists and sovereign investors, according to the website. It seeks to buy large, strategic assets in natural resources, infrastructure, real estate, media and telecommunications.
Several key directors on Scepter’s board are members of the Brunei royal family, including Prince Abdul Ali Yil Kabier and Prince Bahar Bolkiah, according to its website. Another director is Sheikh Juma Al Maktoum, uncle to the Crown Prince of Dubai and part of the ruling Al Maktoum family.
As well as co-investing with the syndicate, the former Blackstone executives operate a merchant banking business to advise and identify opportunities, the website shows. While at Blackstone, the team led by Steains helped advise on Aluminum Corp. of China’s purchase of a stake in Rio Tinto Group.
Highbury Partnership is advising Scepter on its potential bid for Santos, the people said.
A call to Scepter’s office in New York outside regular business hours wasn’t immediately returned, while Ellice-Flint didn’t immediately respond to e-mail and didn’t answer a call to his office seeking comment. Rob Malinauskas, an Adelaide-based spokesman for Santos, declined to comment on Ellice-Flint’s involvement in the Scepter bid.
To contact the reporters on this story: Ben Sharples in Melbourne at firstname.lastname@example.org; Brett Foley in Melbourne at email@example.com. To contact the editors responsible for this story: Ramsey Al-Rikabi at firstname.lastname@example.org; Ben Scent at email@example.com Andrew Hobbs, Ben Scent.
Copyright 2016 Bloomberg News.
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