Ellice Flint

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Chanticleer understands Ellice-Flint will be executive chairman of Santos if Scepter is successful with its all cash offer. David Mariuz
by Tony Boyd
The $7.1 billion Santos takeover proposal carries added credibility because of the involvement of former Santos chief executive John Ellice-Flint who has been enlisted by Scepter Partners.

Chanticleer understands Ellice-Flint will be executive chairman of Santos if Scepter is successful with its all cash offer.

The bid and Ellice-Flint's involvement will ratchet up the pressure on executive chairman Peter Coates to proceed with asset sales that unlock the inherent value hidden within the beaten down company.

The Coates argument against entertaining the conditional and non-binding $6.88 per share cash proposal from Scepter Partners is that it severely undervalues the company compared to its net asset value.

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When Peter Coates, left, put the company up for sale in August it was highly likely that one of the world's vulture funds would swoop down to grab a bargain. Robert Shakespeare
Although the proposal fits the normal takeover criteria by being at a 30 per cent premium to the last traded price, it is well below broker valuations of the company using discounted cash flow analysis.

The broker valuations placed on the company range from the bearish $5.43 a share of Credit Suisse to the super bullish $11.66 of Macquarie.

If you strip out the outliers the average valuation of brokers is $9.36 a share or 70 per cent premium to the last traded price.

The only way Coates can win this argument is if he proceeds with asset sales that unlock the value that he believes is sitting within Santos and obscured by market concerns about its debt and earnings prospects.

Company Profile
Gas and petroleum exploration and the production, treatment and marketing of natural gas, crude oil, condensate, naphtha and liquid petroleum gas; transportation by pipeline of crude oil.

When Coates put the company up for sale in August it was highly likely that one of the world's vulture funds would swoop down to grab a bargain.

Scepter Partners is closely linked to the Brunei Royal Family, which has world class investments in LNG, and shares many of the same Asian LNG customers as Santos.

That is what Scepter Partners is doing with its "indicative, highly conditional and non-binding cash proposal at $6.88 a share. The offer values the equity at $7.1 billion, which is slightly less than the company's net debt of $7.5 billion.

Scepter Partners was described by Santos as "a direct investment business whose stakeholders include a standing syndicate of ruling families, ultra-high-net-worth industrialists and sovereign wealth fund".

One of its directors is John Bond, who used to sit on the Xstrata board of directors with Coates before Xstrata was taken over by Glencore.

Santos told the ASX: "The proposal is considered to be opportunistic in nature and does not reflect the fair underlying asset value of the company."

The Santos decision to disclose the receipt of the offer is in keeping with the new market norm that confidential offers be revealed to the market as soon as possible.

Ellice-Flint, who ran Santos from 2000 to 2008, was the brains behind the company's expansion in the Cooper Basin and its strategic shift into coal seam gas for export through the $18.5 billion GLNG project in Gladstone.

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