Santos ((STO)) has lifted its proposed scrip ratio for the merger with Oil Search to 0.6275 of its shares for every Oil Search share. This is a 6.5% increase.
The Oil Search board will recommend the revised offer in the absence of a superior proposal and has granted four weeks of exclusive due diligence.
UBS remains supportive of the strategic rationale, given this merger will create the largest Australian listed oil & gas company with the opportunity to be self-funding.
The broker believes the market is currently undervaluing the Oil Search portfolio, although recognises the growth projects are more likely to achieve full value as part of a merged business. Buy rating and $4.65 target maintained.
Sector: Energy.
Target price is $4.65.Current Price is $3.94. Difference: $0.71 – (brackets indicate current price is over target). If OSH meets the UBS target it will return approximately 15% (excluding dividends, fees and charges – negative figures indicate an expected loss).
