The boards of both shell and BG have reached an agreement on the terms of a cash and share offer which, if approved by shareholders and regulators will be one of the biggest transactions of the year.
News of the merger between the two companies appeared at the end of last year when BG’s share prices dipped to a 5 year low
Royal Dutch Shell has agreed to buy gas and oil exploration from their smaller rival BG Group for £47bn and in doing so the combined group will be valued at more than £200bn.
Ben van Beurden, the chief executive of Shell had this to say: "Bold, strategic moves shape our industry. BG and Shell are a great fit. This transaction fits with our strategy and our read on the industry landscape around us. 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."
BG shareholders will receive £3.83 in cash for every share of BG they own. This will tip the scales to value each BG share at £13.50 because of this BG shareholders will own around 19percent of the combined group. The chief executive of BG, Helge Lund, said: “The offer from Shell delivers attractive returns to shareholders and has a strong strategic logic. BG’s deep water positions and strength in exploration, liquefaction and LNG shipping and marketing will combine well with Shell’s scale, development expertise and financial strength” – Shell stated that the acquisition will increase its oil and gas reserves by 25 percent and its production capabilities by 20 percent.
This deal has come about at a time of uncertainty in the world of oil and gas. In the past 6 months, we’ve seen the price of oil fall by roughly 50%. To add to this analysts have warned that any investment in the North sea is null and void, as the oil has all but dried up – threatening the industry as a whole. BG was forced to cut down its oil and gas assets by $9bn in February and brought in Helge Lund a month early. BG had no boss at all for almost 12months and since Lund’s arrival he has already accrued some goodwill with investors by agreeing to halve his compensation package from £14million to £7million a year.
Marc Kimsey, senior trader at Accendo Markets, said: "The deal between Royal Dutch Shell and BG Group will prompt sector consolidation. The decline in oil price over the past year has battered some stocks which are clearly now looking attractive. In the last year, BG shares fell 30percent, shares in Tullow Oil have fallen 65percent, Premier Oil down 55percent, and Petrofac down 20percent. By comparison sector behemoths BP and Royal Dutch Shell have only shed 10percent over the same period leaving them in the position of predator rather than prey."
BG shares closed 6.74percent higher at 910.4p on Tuesday before news of the talks emerged. Shell's shares climbed 3.4percent to £20.94.
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