Adnoc’s XRG pulls the plug on Santos bid: An XRG-led consortium, which also includes Abu Dhabi sovereign wealth fund ADQ and private equity firm Carlye, withdrew its USD 18.7 bn non-binding offer for Australian oil and gas producer Santos, according to a statement. The consortium said it will not proceed with a binding offer, ending months of exclusive talks just days before Santos’ scheme implementation deadline tomorrow.

What happened? The consortium said a “combination of factors” were behind the decision, without naming the exact reason, while Bloomberg cites sources as saying the decision was made due to disagreements over valuation and tax. One person familiar with the matter told the Financial Times that the firm had insisted that the consortium pay capital gains tax liabilities arising from the transaction, and had displayed an "inflexible and unrealistic approach.” The source also said that it had failed to mention a long-running leak at one of its facilities to the consortium, which later found out through the media.

The move would have been Australia’s biggest all-cash corporate takeover, and Adnoc’s biggest yet. The hefty price tag was not enough to secure the agreement, despite being a considerably higher offer compared to a previously rejected USD 10.8 bn private equity-backed Harbour Energy in 2018. A second bid from Australian rival Woodside Energy was also rejected last year. "The market will ask questions about Santos' valuation after this ... XRG was a less price sensitive buyer than most yet still couldn't make it work," said MST Marquee senior energy analyst Saul Kavonic.

BACKGROUND- The consortium submitted its offer in June at USD 5.76 a share, marking a 28% premium to Santos’ last predeal close. The bid later won exclusivity through to September. Santos had signaled it was ready to take the offer provided no higher bid came along.

Commercial terms were not the only anticipated roadblock: Analysts had previously cautioned that regulatory approvals, particularly from Australia’s Foreign Investment Review Board, as well as authorities in the US and Papua New Guinea, would be difficult to secure given Santos’s role in critical energy infrastructure.

The consortium still has its eyes set on Australia: The consortium is still expected to explore investment prospects in Australia’s energy sector, CNBC reports, adding that sources said the regulatory approvals were not a concern and that the decision was “purely commercial.”

XRG has been beefing up its portfolio: The international investment arm recently said it would convert a planned EUR 1.2 bn capital hike in Covestro into a market-rate shareholder loan in a bid to ease EU subsidy concerns over its EUR 14.7 bn takeover bid. Adnoc also transferred its stakes in Adnoc Distribution, Adnoc Gas, and Adnoc Logistics & Services to XRG, with Adnoc Drilling to follow pending approvals. XRG — launched in 2024 with USD 80 bn in assets, with a target of doubling its assets — is also set to acquire Adnoc’s OMV stake and a majority stake in Borouge Group International.

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