Woodside Energy Group announced in a statement on Wednesday that it has ceased discussions with Santos, after it was revealed in December that the two were exploring a merger which would have created an entity worth $80 billion.
At the time, Morningstar’s senior equities analyst, Mark Taylor, said the merger of two of Australia’s largest oil and gas companies would lead to the creation of a “bigger, better, deeper, stronger” entity with more standing on the global stage.
However, despite the initial market excitement, Woodside said on Wednesday that it would only pursue a deal that is “value accretive for its shareholders”.
In a separate statement, Santos said it too will “continue to review options to unlock value for shareholders”.
Santos shares fell nearly 9 per cent immediately post the announcement, while Woodside’s gained 1 per cent.
The two sides had spent some two months engaged in a due diligence process, which they, at the onset, clarified would not guarantee a transaction.
Commenting on their decision to conclude the process, Woodside chief executive officer Meg O’Neill said: “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.”
Santos, for its part, said that “sufficient combination benefits were not identified to support a merger”.
Speaking to InvestorDaily back in December, Mr Taylor suggested that it would make “a lot of sense” to combine the two businesses.
“You’ll get some administrative synergies out of it, obviously. There’ll be some advantage in mixing and matching resources with existing infrastructures where it makes sense,” he said.
“With Woodside’s trading side of the business – LNG trading – it’ll help in that regard having a deeper, broader portfolio of LNG production and projects. There’ll be greater diversification.”
However, Mr Taylor also cautioned that the deal wouldn’t be easy to get across the line. In particular, he suggested that Santos chief executive Kevin Gallagher would have “pretty high expectations” regarding the benefits that Santos’ shareholders would get out of a merger entity.
According to analysts, the merged entity would have controlled approximately 26 per cent of the east coast gas market and 35 per cent of the West Australian gas market. This could have posed competition concerns, particularly on the east coast, where domestic gas supply has been a sensitive political topic.
Shares in Santos dropped by 5.8 per cent on Wednesday, closing at $7.41. Meanwhile, Woodside’s shares have edged 0.53 per cent higher to $32.46.
