China's ENN to `Cautiously Consider' Harbour's Santos Offer

(Bloomberg) -- A Chinese company holding the largest stake in Santos Ltd. said it will “cautiously consider” a $10.3 billion takeover approach from U.S. suitor Harbour Energy Ltd. for the Australian liquefied natural gas exporter.

A unit of gas distributor ENN Group, which owns 10.1 percent of Santos, will hold initial talks with Harbour with the aim of maximizing shareholder value, it said in an emailed statement Monday, while warning a deal may not be completed due to uncertainty over the price and timing.

Harbour returned with a sweetened A$6.50-a-share bid for Santos late last month after a A$4.55-a-share non-binding proposal made last August was rejected due to an “inadequate” price and uncertain funding. The South Australian company granted Harbour due diligence on April 3 and its board will likely issue a recommendation to shareholders in the next two months, Chief Executive Officer Kevin Gallagher said last week.

ENN said Monday it remains bullish about Santos’ long-term prospects and hopes to maintain a strategic working relationship, including an agreement reached in February to create a trading venture to tap Chinese demand for LNG.

ENN and an associated Chinese company Hony Capital may emerge with a 30 percent stake in a new company if the Harbour takeover proceeds, Credit Suisse Group AG analysts wrote in an April 5 note. The prospect of high overseas ownership may raise issues with Australia’s Foreign Investment Review Board given Santos has significant gas reserves on the nation’s east coast.

Cathy Wang, a Beijing-based spokeswoman at Hony Capital, declined to comment.

Any deal to buy the Australian energy company would give Harbour stakes in the Gladstone liquefied natural gas plant in Queensland, the Darwin LNG facility and a holding in Exxon Mobil Corp.’s Papua New Guinea LNG project. Harbour’s Chief Executive Officer Linda Cook said she would seek to expand Santos in Asia and Africa should it win control of the company.

Santos shares, which gained 16 percent last week, traded little changed at A$5.88 at 3 p.m. in Sydney.

ENN Ecological Holdings Co., a listed unit of ENN Group, became the largest shareholder in Santos two years ago.

To contact the reporters on this story: Perry Williams in Sydney at pwilliams113@bloomberg.net, Cathy Chan in Hong Kong at kchan14@bloomberg.net.

To contact the editors responsible for this story: Ramsey Al-Rikabi at ralrikabi@bloomberg.net, Edward Johnson

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