The Oil Search Ltd [ASX:OSH] shares shot up 6% this morning, following a promising ASX update.
The company revealed in an announcement that it had received a new and improved merger proposal from fellow energy titan Santos Ltd [ASX:STO].
Under this new agreement, Oil Search shareholders would hold a rough 38.5% stake of the merged group. (Santos shareholders would keep the remaining 61.5% interest.)
In response, it appears both Oil Search and Santos shareholders are pleased.
Why is the deal attracting investors?
This isn’t the first time Santos has tried to win Oil Search over.
Only last month the Oil Search Board rejected its fellow energy producer’s offer of 0.589 of Santos shares for each Oil Search share owned.
But a generous revision may have proven worthy for both parties…
If the new proposal goes ahead, Santos will obtain all of Oil Search’s shares.
In return, Oil Search’s management believe that:
‘The Revised Proposal presents Oil Search shareholders with an opportunity to maintain ongoing exposure to Oil Search’s portfolio of world-class assets as part of a merged group for which there is strategic logic.’
Another reason why Oil Search intend to ‘unanimously recommend’ the takeover is this:
The merged group would be within the S&P ASX-20 Index and amongst the top 20 largest global oil and gas companies.
This is no small feat and there’s certainly strength in numbers.
But does this mean the merger is set to go ahead?
What’s next for the two energy producers?
The green light isn’t exactly flashing yet for Santos. Although Oil Search has chosen to grant Santos due diligence access, this is subject to both parties entering into a mutually comfortable confidentiality agreement.
The full process is expected to take roughly four weeks.
But if all runs smoothly, this merger will be historic in the making and shareholders will have many exciting features to look forward to.
Some of these include a ‘diversified portfolio of high quality, long-life, low-cost assets across Australia, Timor-Leste, Papua New Guinea and North America with significant growth optionality,’ and an ‘investment grade balance sheet with more than US$5.5 billion of liquidity to self-fund development projects, whilst maintaining further optionality and flexibility to optimise the portfolio.’
Shareholders should also stand to benefit should the two companies synergise their projects smoothly. Santos was noted to have an ‘excellent track record of integration’.
Oil Search share price outlook
Oil Search shares are sitting at $4.00 right now.
If the following four weeks yield more positive tidings, investors could bid up the stock further.
Yet it’s still early days for this merger, and it’s anyone’s guess as to what will happen next. The share price might go nuts…or it might not.
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