Royal Dutch Shell agrees £47bn deal for BG Group
Energy titan Royal Dutch Shell on Wednesday announced a mega takeover of British rival BG Group worth £47 billion, consolidating their positions in a sector battered by sliding oil prices.
The cash and shares deal, approved by the BG board and worth the equivalent of $70 billion or 64 billion euros, will help Shell to boost its flagging output thanks to BG's strong position in liquefied natural gas (LNG), a cleaner alternative to energy types such as coal and nuclear.
The new company will be worth twice the value of BP and overtake US energy giant Chevron Corp. on finalising the sector's biggest deal in a decade, according to Bloomberg News.
BG's share price, which has tumbled over the past year on plunging oil prices, soared by almost 40 percent in reaction to Wednesday's announcement.
"The boards of Shell and BG are pleased to announce that they have reached agreement on the terms of a recommended cash and share offer to be made by Shell for the entire issued and to be issued share capital of BG," said a statement issued by the Anglo-Dutch group.
The offer represents a premium of about 50 percent compared with BG's closing share price on Tuesday, costing Shell "approximately £47.0 billion" for its rival, the statement added.
"The result will be a more competitive, stronger company for both sets of shareholders in today's volatile oil price world," Shell chairman Jorma Ollila said in the release.
BG chief executive Helge Lund said the deal "delivers attractive returns to shareholders and has strong strategic logic".
He added: "BG's deep water positions and strengths in exploration... will combine well with Shell's scale, development expertise and financial strength."
It is the first major deal for Lund, formerly chief executive of Norwegian energy giant Statoil, since he took up the reins at BG earlier this year.
- Output boost -
The tie-up will improve Shell's proved oil and gas reserves by a quarter and lift output by a fifth, while delivering "enhanced positions in competitive new oil and gas projects, particularly in Australia LNG and Brazil deep water", the statement added.
"The deal between Royal Dutch Shell and BG Group will prompt sector consolidation," noted Marc Kimsey, senior trader at Accendo Markets.
"The decline in oil prices over the past year has battered some stocks which are clearly now looking attractive. In the last year BG shares fell 30 percent... By comparison sector behemoths BP and Royal Dutch Shell have only shed 10 percent over the same period leaving them in the position of predator rather than prey."
Following Wednesday's announcement, BG's share price was up by a huge 37 percent to 1,251 pence on London's benchmark FTSE 100 index, which was 0.48-percent higher overall to 6,995.43 points in early deals.
Shell 'B' shares -- the ones used to finance the transaction -- dropped 5.82 percent to 2,080 pence.
"UK equities are trading higher, buoyed by confirmation that Shell has agreed to buy BG Group," said Rebecca O'Keeffe, head of investment at stockbroker Interactive Investor.
"In what is the biggest deal in the sector in 10 years, the company is set to become the second largest global energy company, behind only Exxon in terms of scale and resources."
Crude oil prices lost more than half their value between last June and the end of January owing to a supply glut fuelled largely by robust output from US shale rock and weak global demand.
That in turn has weighed heavily on energy majors such as Shell, denting their profits and share prices and causing them to cut operating costs.
© 2015 AFP