‍👉 Background: Santos is Australia’s second-largest oil and gas producer with liquified natural gas export projects in Australia and Papua New Guinea, as well as domestic gas assets on the west and east coast of Australia. Basically, if you’ve boiled pasta in Australia, odds are Santos had something to do with it.

‍👉 What happened: Back in June, Abu Dhabi National Oil Company (aka ADNOC) and a consortium of investors made a $36 billion offer for Santos - a 28% premium to its closing price before the offer. This was an indicative bid to get them in the door... and to get their heads into the books. But after 11 weeks of due diligence, and just two days before the deadline, ADNOC’s consortium said “thank u, next”.

‍👉 What else: ADNOC say that during the due diligence process, they identified concerns that reduced Santos’ value, like a possible monster tax bill lurking underground, a methane leak cover up in one of its facilities as well as concerns about major delays in getting the deal done. All in all, it was a little too much for ADNOC and the investment partners.

‍What's the key learning?

‍💡Due diligence is the process where a potential buyer takes a deep dive into the target company’s operations, finances, and risks before finalising a deal. It’s like getting a building inspection before buying a house for any cracks or termites in the foundation.

💡In mergers and acquisitions, this means reviewing everything from financial statements and contracts to environmental risks and tax liabilities. If red flags pop up, a buyer might negotiate a lower price or add protective clauses... or even walk away entirely, like ADNOC.

💡This isn’t Santos’ first time choking on the deal-fumes. Back in 2018, US player Harbour Energy tried (and failed) to acquire Santos in an $11 billion deal. And in 2023, there was the $80 billion merger talks with Woodside that did not go through either. So it's no surprise that investors are starting to question Santos’ true valuation and its shares plummeted 11% on this news.