Shell acquires BG Group for £47bn in ‘mega-merger’

Shells has splashed the cash to acquire Britain's BG Group. Picture: PA
Shells has splashed the cash to acquire Britain's BG Group. Picture: PA
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TAKEOVER fever gripped the oil and gas sector yesterday following Royal Dutch Shell’s £47 billion swoop for explorer and producer BG in the sector’s biggest deal since the late 1990s.

Shares in BG, spun out from the privatised British Gas in 1997, jumped almost 27 per cent to 1,153p amid speculation that a rival bidder to the British/Dutch Shell group might be waiting in the wings.

“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”

Ben van Beurden

Ben van Beurden, Shell’s chief executive, revealed he made the merger approach via telephone to BG chairman Andrew Gould on Sunday, 15 March.

Gould said he believed the takeover offer, which is at a premium of more than 50 per cent to BG’s average share price over the past three months, was the best combination “at this point in time”.

But asked at a London news conference whether the company had received other approaches, he said: “I’m not going to disclose any more than that.”

Gould also confirmed that until the Shell offer closed the BG board had a duty to look at any serious competing offer that may emerge.

The deal is the biggest since BP snapped up Amoco, and Exxon joined with Mobil, in the 1990s, and follows a period of severe pressure for energy groups as the oil price has halved since last summer, making many investment projects uneconomic.

Analysts said the transaction could kick-start another period of industry consolidation. Shares in Tullow Oil jumped 12 per cent before eventually closing up 4.4 per cent, while BP added 2.45p to 457.3p.

“The decline in oil prices in the past year has battered some stocks which are clearly now looking attractive,” Marc Kimsey, a trader at Accendo Markets, said.

Under the terms of the BG deal, the target’s shareholders will receive £3.83 in cash and 0.45 Shell “B” shares for every BG share they own, about 1,350p in total, and end up owning just under 20 per cent of the combined group.

Van Beurden said it was an “incredibly exciting” time for Shell, and that it was “bold and strategic moves that shape our industry”.

The transaction boost will boost Shell’s proven oil and gas reserves 25 per cent, and its output by 20 per cent. It will generate $2.5bn (£1.7bn) of costsaving and procurement synergies by 2018, the company said.

Simon Henry, Shell’s chief financial officer, said the synergies were likely to include headcount cuts globally of “quite a few hundred”, with indications the brunt will fall on administration, marketing and the supply and shipping chains.

BG Group, which employs about 5,200 staff in 24 countries, is seen as attractive because of its growth projects in Brazil and Australia, and strong liquefied natural gas (LNG) business.

Henry said the cash flows and synergies thrown off by the combination would allow the group to boost dividends and share buybacks in the coming years. The company is also already committed to $30bn of asset sales between 2016 and 2018.

New BG chief executive Helge Lund will leave the combined entity after the deal, potentially landing a £25 million payoff after joining just two months ago from Norwegian energy giant Statoil.

Gould said he received the takeover approach after Lund had joined BG. He added that there was “nothing to be read into” the chief executive’s absence from yesterday’s news conference as he was communicating the details of the deal to staff at BG’s HQ in Reading, Berkshire.

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