Scepter Taps Former Santos Boss for $5.15 Billion Takeover Bid

  • Scepter Partners offers A$6.88 cash for each Santos share
  • Santos surges most in almost 30 years after rejecting bid

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 should its bid succeed.

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 people familiar with the matter, 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 shares jumped 16 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.

Shares Jump

Ellice-Flint, who led Santos from 2000 to 2008, would return as executive chairman should the bid succeed, Scepter said in a separate statement. The executive, who is currently chairman of Brisbane-based Blue Energy Ltd., was replaced by Knox.

“Our vision is to build Santos into an Asian oil and gas leader, based in South Australia, harnessing the skills and experience of the Santos workforce,” Ellice-Flint said in the statement from Scepter.

Santos, which lost more than half its market value in the year to Wednesday, surged 88 cents today to A$6.32, for the biggest percentage gain since March 1986. 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.”

Deals Surge

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.

Brunei Connection

Several 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 and Gilbert & Tobin are advising Scepter on its potential bid for Santos. Santos is being advised by Deutsche Bank AG and Lazard Ltd.

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