Royal Dutch Shell is to buy BG Group in the energy industry's biggest deal in more than a decade, paying £47 billion for the equity of its rival.
The transaction is the oil sector’s most dramatic response so far to the slide in crude prices, which have slumped 50 per cent since last June, and could usher in further consolidation across the industry as companies scramble to cut costs.
The deal will increase Shell’s oil and gas reserves by a quarter and its production by 20 per cent. Analysts say it could put the company on track to surpass ExxonMobil as the world’s largest non-state oil company by output
Global majors
Acquiring BG will also turn
Shell
into the largest foreign oil company in
Brazil
, one of the world’s richest and most exciting oil provinces, and strengthen its position as the largest producer of liquefied natural gas among the global majors.
BG shares were 28 per cent higher at £11.69 in afternoon trading in London. Shell’s B shares were down almost 8 per cent at £20.33, with some analysts suggesting Shell may have paid a steep price for its rival.
However, Ben van Beurden, Shell's chief executive, said the deal represented an "incredibly exciting moment" for the Anglo-Dutch major, which has struggled in recent years to boost production and increase its reserves.
He said Shell had long had its eye on BG and the recent fall in the oil price made a deal ”very compelling from a value perspective”.
BG’s share price had fallen 28 per cent between last June and the announcement of yesterday’s deal.
Trading volumes
Shell will pay BG shareholders 383p a share in cash, plus 0.4454 B shares in Shell. That is equivalent to £13.50p a BG share and values BG’s equity at about £47 billion. It is a premium of about 50 per cent based on 90-day trading volumes.
BG recorded net debt of £8 billion at its last results, putting a total enterprise value on the deal of almost £55 billion.
Some Shell shareholders cautioned that by acquiring BG, Shell would be taking on some potentially troubled assets, particularly in Brazil and Australia, where projects have been hit by cost overruns and delays.
However, Michael Clark, portfolio manager of Fidelity MoneyBuilder Dividend Fund, a big investor in Shell and BG, stressed it was a good deal for both sets of shareholders. – Copyright The Financial Times Limited 2015
