(Bloomberg) — Santos Ltd. surged as much as 11% on prospects for a combination with Woodside Energy Group Ltd., a deal that would see the companies worth A$80 billion ($53 billion) create a natural gas powerhouse.
Adelaide-based Santos rose to as much A$7.46 in early Friday trading in Sydney before paring gains, as Perth-based Woodside fell as much as 2.9%.
The companies separately confirmed late Thursday they had early-stage discussions on a possible transaction. Santos said it’s also reviewing other alternatives aimed at lifting its valuation.
Read more: Woodside and Santos in Early Deal Talks to Create LNG Giant
“The rationale to merge is clear: it could create a giant APAC LNG company, with a well diversified asset base,” UBS Group AG analysts including Tom Allen wrote in a Friday note. A combined entity would offer “globally unique LNG exposure, with the scale to self-fund energy transition and pursue further material growth.”
A deal faces potential regulatory risks, holds limited operational benefits and it could prove difficult to meet the desire of Santos’ holders to win a premium, Evans and Partners Pty Ltd. analysts including Adam Martin said in a note.
“On first impression it doesn’t appear compelling,” Martin said. “The devil will be in the detail.” TotalEnergies SE, BP Plc and ConocoPhillips are all potential alternative buyers of Santos, he said.
Santos, valued at about A$24 billion, said last month it was working with advisers on options to boost its share price. Woodside, with a market capitalization of about A$55 billion, is seeking to add growth to meet oil and gas demand that it forecasts will remain resilient for decades.
Woodside last year completed a deal worth about $20 billion to add BHP Group Ltd.’s oil and gas division, while Santos acquired Oil Search Ltd. in a $15 billion transaction agreed in 2021.
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