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Highlights

  • Macquarie maintains Outperform rating on Santos (ASX:STO) with AUD 8.85 target price
  • Analysts see limited likelihood of competing bids, though don’t fully rule them out
  • Santos shares up 18% over past month following XRG consortium takeover approach

Analysts at Macquarie Group Ltd (ASX:MQG) have reiterated their Outperform rating on Santos Ltd (ASX:STO), setting a 12-month price target of AUD 8.85, suggesting a potential upside of nearly 16% from the current trading level of AUD 7.66. The reaffirmation follows Santos’ recent announcement that it has granted a six-week exclusive due diligence period to the XRG consortium — led by ADNOC and Carlyle — for its proposed takeover.

The energy company's stock has gained 18% over the past month, largely driven by investor reaction to the ongoing takeover discussions. In contrast, shares of peer Beach Energy Ltd (ASX:BPT) have remained relatively flat during the same period.

Macquarie’s report notes that the exclusivity agreement allows the consortium access until August 8, although the period could lapse earlier — by July 25 — should a superior proposal emerge. However, the broker expresses skepticism about the likelihood of such a competing bid materializing. While it mentions EIG (via MidOcean) as a potential wildcard, it considers a re-entry by EIG or a proposal from Woodside Energy unlikely due to time elapsed and deal structure concerns.

Macquarie also downplays potential regulatory roadblocks, stating that the Foreign Investment Review Board (FIRB) approval process may not present a significant hurdle for the XRG consortium. The broker highlights that ADNOC’s main interest appears to be Santos’ LNG assets, which are expected to raise fewer national interest concerns compared to domestic gas assets like Narrabri and Varanus Island, which could be divested if necessary.

Given the broker’s view that a competing offer is not imminent and that the due diligence process will proceed with minimal friction, Macquarie sees scope for Santos’ share price to capture much of the remaining implied return over the next several weeks.

In conclusion, Macquarie maintains that Santos presents a 14%–16% near-term return opportunity, largely driven by the progressing takeover process and limited likelihood of alternate bids disrupting it.