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Shell to absorb BG in £47bn mega-merger

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08/04/2015
Royal Dutch Shell has announced it will purchase BG Group for £47bn, in one of the largest corporate transactions ever.

The deal, which will lead to the formation of a £200bn company, was confirmed this morning. The Shell/BG merger will be the first of its kind since the last period of oil price stagnation in the mid-90s when BP and Exxon absorbed several smaller competitors – and the world’s fourth largest ever.

A spokesperson for Shell said the deal valued BG shares at approximately £13.50 per share, and BG shareholders would receive 383p in cash for each share they own – plus 0.4454 Shell B Shares. When the acquisition is complete, BG shareholders will own just under a fifth of the group (approximately 19 per cent).

On announcement of the deal this morning, BG shares jumped by 38 per cent (to £12.51); Shell shares, however, fell by 3.5 per cent (to £20.22). A spokesperson for Shell said the merger would allow the company to expand its liquefied natural gas and deep water offering, increase its oil and gas reserves by 25 per cent and afford the company a greater ability to pay dividends.

“BG will accelerate Shell’s financial growth strategy, particularly in deep water and liquefied natural gas: two of Shell’s growth priorities and areas where the company is already one of the industry leaders,” said Ben van Beurden, chief executive of Shell. “The addition of BG’s competitive natural gas positions makes strategic sense, ahead of the long-term growth in demand we see for this cleaner-burning fuel.”

“Over time, the combination will enhance our free cash flow potential, and our capacity to undertake share buybacks, where I expect to see a substantial increase in pace.”

Andrew Gould, chairman of BG said the offer represents “an attractive return” for BG shareholders.

“BG has a strong portfolio of operations including growth assets in Australia and Brazil and a highly competitive LNG business, as well as an enviable track record of exploration success. The BG board remains confident in BG’s long-term prospects under the leadership of Helge Lund. Shell’s offer, however, allows us to accelerate and de-risk the delivery of this value.

“The structure of the offer will provide BG shareholders with an attractive premium and a substantial cash return as well as enabling them, if they wish, to participate in the benefits of the combination through the share component. For these reasons, the BG Board recommends the offer.”

Since June last year, global oil prices have been falling, leading some analysts to predict that a wave of consolidation in the oil and gas sector might follow. The share prices of companies involved in the merger have been adversely affected by the trend; Shell announced in January it would reduce spending by nearly £10bn over the next three years, and BG confirmed in February that the value of its oil and gas assets would be written down by almost £6bn due to the slump.

 

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