The Santos Ltd (ASX: STO) share price is struggling today. Shares in the S&P/ASX 200 Index (ASX: XJO) energy company are down 1% in afternoon trade to $6.82 per share.
This comes amid steady crude oil prices (Brent crude is at US$82.32 per barrel, up 10 US cents overnight). And the Santos share price is slipping despite its mega-merger with fellow ASX 200 energy share Oil Search Ltd (ASX: OSH) edging another step closer.
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Santos share price in red
Investors aren't bidding up the Santos share price today despite news that the 4 major proxy advisers now recommend Oil Search shareholders vote in favour of the merger at the extraordinary shareholders meeting on 7 December.
According to the Australian Financial Review, "CGI Glass Lewis has joined Institutional Shareholder Services (ISS), Ownership Matters and the Australian Council of Superannuation Investors in advising Oil Search shareholders to back the deal…"
For the merger to go through on 10 December, as both the Santos and Oil Search boards hope, 75% of shareholders will need to back the deal. The merger also faces a final hurdle from Papua New Guinea's National Court, which is expected to make its final determination on 9 December.
What are the reservations about the merger?
As the Motley Fool reported on 11 November, independent expert Grant Samuel reached the conclusion that the merger "is in the best interests of Oil Search shareholders in the absence of a superior proposal".
The Santos share price dropped 2% on the day.
The report, based on Samuel's findings, did note the following reservation:
Oil Search shareholders should note that, in its report, the independent expert has made an assessment of the underlying value of each of Oil Search and Santos and, on the basis of its view of those relative underlying values, has suggested that Oil Search shareholders are contributing a greater proportion to the underlying value of the merged group than the 38.5% which they will receive under the terms of the merger.
The report went on to state that:
However, the independent expert also notes the strategic, commercial and funding benefits of the merger, and has ultimately concluded that Oil Search shareholders are likely to be better off if the merger proceeds than if it does not.
This same reservation is what led ISS to qualify its own positive recommendation. Noting there were no superior offers at hand, ISS said (quoted by the AFR):
The qualification is to highlight concerns that a key reason provided in the scheme booklet for voting against the transactions is that OSH shareholders may take the view that the merger ratio implied by the scheme consideration does not reflect the underlying value of the contribution of OSH to the merged group.
Santos share price snapshot
The Santos share price is up 6% in 2021, trailing the 11% year-to-date gains posted by the ASX 200 during this same period.
Over the past month, Santos shares have lost around 6%.
