1. On 3^rdApril 2018, Harbour energy issued its statement about the bid and the announcement has been done by the company on the same date that:
2. The harbour energy would take over all the shares of the Santos limited.
3. The company would offer US $ 4.98 per share and $ 6.13 per share would be paid in case and 37% shares would be franked dividend.
4. The closing price on 2^ndApril 2018 was $ 5.07.
5. The offer is quite higher than the market value of the company.
6. In addition, the harbour limited would pay only $ 6.13 per share and rest share would be full frankly dividend which explains that the shareholders who accept the proposal of the company would got $ 6.13 per share.

1. Santos limited is an Australian company which deals in the natural gas. The company is engaged in production, development, exploration, sales of natural gas in Australian market as well as international level.
2. The company produced the ethane, methane, liquid petroleum gas, shale gas and oil. The company has been founded in 1954. The company has been awarded as second largest independent oil and gas Production Company.
3. The financial performance of the company explains about the continuous loss to the company. However, the deal offered by US energy player, Harbour energy is not good for the company as the company could generate more profits from the market through making few changes into the corporate strategies.

1. The reports and analyst of company explains that the offer us neither reasonable nor fair. The analyst reports explains about the few reasons:

1. Trend analysis is a study which measures the changes into the financial performance and position of an organization.
2. On the basis of trend analysis study over the company, it has been measured that the total revenue of the company in continuously enhancing as well as the trend explains that the net loss trend of the company has been lower.
3. It has also impacted over the earnings per share of the company.

 

1. Further, the statement of financial performance of the company explains that the total current assets and noncurrent assets of the company have been lowered and due to it, total worth of the company has been lower. Total liabilities level of the company has been lowered. However, the company has strategized to manage the resources on the basis of profitability generation capability of the company.

 

1. The trend analysis study on competitive company, BHP Billiton explains that the changes into the industry, financial factors and economical factors have affected the performance of the company.
2. The study of trend analysis explains that in future, the position of the company would be better again. The management of the company is just required to make changes into the policies to enhance the performance of the company.

1. Financial ratios are a study which explains about the various position and performance of the company. It evaluates the financial position of the company and assists the company about the internal and external impact over the company.
2. Profitability ratio of the company explains that the profitability performance of the company has been lowered a lot in last 5 years.

 

1. Further, the liquidity ratio of the company explains that the liquidity position of the company is quite impressive. Company could easily meet all its short term debt obligations.

 

1. In addition, the efficiency ratios of the company have also been evaluated which explains that the working capital management and the efficiency level of the company are quite impressive.

 

1. Lastly, the capital structure and investment ratios have been calculated and it has been measured that the company is not able to pay the interest amount to the debtors of the company and thus debt level of the company has been lowered. Further, it has been found that the company is facing huge loss. Still, it has managed to offer a good amount of dividend to its stockholders.

 

1. On the basis of evaluation, it has been found that the profit generation capabilities of the company have been lower. Still, the company is enough strong to manage all the functions and activities in good manner in the company.  

1. The stock price of the company has been valued further on the basis of dividend discount model and discounted cash flow evaluation method to recognize the exact value of the stock of the company.
2. WACC of the company has been measured firstly and it has been recognized that the total cost of capital of the company is 4.52% out of which cost of debt and cost of equity of the company is 3.5% and 5.05%. The optimal capital structure of the company is quite better according to the current performance of the company.

 

1. Dividend discount model of the company explains that the intrinsic value of the stock of the company is $ 12. However, the share price of the company is $ 5.07. It explains that the stock price of the company is undervalued in the market.

 

1. Further, the discounted cash flow method has been used to identify the stock valuation of the company and it has been measured that the average cash flow of last 5 years of the company is $ 37,35,51,409.50. It further explains that the terminal cash flow of the company is $ 29,39,64,69,964 and the stockholder of the company is 2,07,88,58,067. It leads to a conclusion that the stock price of the company is $ 15.67.

 

1. In addition, the residual earnings method has also been applied on the Santos limited to measure the performance of the share price and intrinsic value of the company.
2. The residual earnings method of the company explains that the earnings per share of the company in the year of 2018 and 2019 would be $ 0.29 and $ 0.32 respectively.
3. Further the earnings yield has been measured on the basis of the index value of the stock exchange which is 10.16% in both the years.
4. It lead to the outcome that the intrinsic value of the stock should be $ 285 in 2018 and $ 3.15 in 2019.
5. It explains that the actual share price of the company in the year of 2018 and 2019 would be $ 6.25 and $ 6.44.
6. It explains that the stock price of the company is overvalued.

 

1. The corporate performance and the market position of the company would be improved with the changes into the industrial factors of the company.
2. The competitors’ position explains that the company is second largest independent oil and gas Production Company in Australian market.
3. The other financial performance of the company has also been calculated on the basis of the financial statement of Santos limited.
4. The below table explains that the share return of the company has been lowered from last year as well as the market performance and the income statement of the company explains that the financial performance of the company has been lowered from last year.

 

1. Further, the balance sheet analysis explains that that the financial position of the company has been lowered from last year as well as the market performance and the balance sheet of the company explains that the financial position of the company has been improved from last year.

 

1. In addition, the cash flow statement ratio has been measured and it explains that the company has improved the cash position in the market. The cash position and the liquidity position are significant in current scenario.

 

1. On the basis of the study, it is recommended that the offer is neither reasonable nor fair.
2. As the financial performance explains that the trend of net loss has been lowered and briefs about better performance of the company in near future.
3. As well as, the valuation model briefs that the intrinsic value of the stock of the company is quite higher than the market value of the company. The company should consider over the intrinsic value rather than the market value and must focus on the market policies so that the market price could be improved.
4. To recommend, Santos Limited should not accept the deal of Harbour limited of acquiring the company and offer AU $ 6.5 to each shareholder of the company out of which $ 6.13 as case amount and rest 37% as frankly dividend amount.
5. Company must either make the alternations into the deal or run the business at own.