Match made in Energy Heaven! Brokers weigh in on Woodside - Santos merger

Fri 08 Dec 23, 2:50pm (AEDT)
Woodside Energy and Santos Merger
Source: Shutterstock

Key Points

  • Woodside Energy and Santos have confirmed they are in merger discussions
  • The combined entity would be a major global player in the APAC energy supply chain
  • Big brokers have been active today in commenting on the potential merger

What started as a rumour has now been confirmed. Woodside Energy (ASX: WDS) and Santos (ASX: STO) are officially in “discussions regarding a potential merger”.

Before we get too excited about the prospect of an approximately $80 billion energy juggernaut, we should remember that it’s still early days in the process, and in the words of the two companies: “there is no certainty that the discussions will lead to a transaction”.

But it is a tantalising prospect! The combination of the two biggest ASX-listed energy companies would put it among the biggest in the world, possibly somewhere between BP (8th-largest) and Schlumberger (11th-largest). Additionally, the synergies across the two companies are expected to be substantial.

Needless to say, the big brokers have weighed in on the possible tie up today. Here’s a summary of their respective views:

JP Morgan

  • Merger could have ramifications for energy sector as could trigger increased M&A activity

  • Synergies likely constrained by fact there is actually limited overlap between two businesses

  • Merged entity would have attractive scale and reach given quality assets and jurisdictions

  • ACCC may not green light deal unless some divestments are made, and this could impact the attractiveness of the merged entity


  • If the merger doesn’t eventuate, there could be longer lasting scrutiny on Santos as a potential takeover target

  • Woodside has some valuable experience in taking on new assets (e.g., recent acquisition of BHP’s energy assets)

  • Woodside may need to offer a premium for Santos to get the deal over the line, perhaps in the order of magnitude of 30% above the last price prior to the announcement, an all scrip offer is the logical option

  • The deal is unlikely to be blocked by the ACCC, but some divestments are likely


  • A 20-30% premium to Santos 7 December closing price ($8.20-$8.88) would be required, giving Santos shareholders 0.273-0.296 Woodside shares

  • The merged company would “create a giant” in the APAC region with respect to LNG (greater than 70% in product mix), and it would have a “well diversified asset base”

  • Synergies could be $150-$300 million (“$200 million base case”)

  • EPS accretive from the first year, free cash flow accretive from 2027

  • ACCC would likely scrutinise east coast assets, divestments are a “key risk” as could “drag on merger economics”

  • Santos appears undervalued, and for deal to proceed, Woodside must “pay up for that value” – the prospect of this not occurring is the “biggest risk” to deal not proceeding

  • The dividend yield of the combined entity would likely decline to around an average of 5% p.a. until 2026, afterwhich EPS accretion from the merger and lower capex will push it up to over 7.5% p.a. by the end of the decade.

Combined Woodside and Santos pro-forma DPS and Dividend Yield Outlook. Source UBS
Combined Woodside and Santos pro-forma DPS and Dividend Yield Outlook. Source: UBS


Written By

Carl Capolingua

Content Editor

Carl has over 30-years investing experience and has helped investors navigate several bull and bear markets over this time. He is a well respected markets commentator who specialises in how the global macro impacts Australian and US equities. Carl has a passion for technical analysis and has taught his unique brand of price-action trend following to thousands of Aussie investors.

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