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Wednesday, April 8, 2015
A mega-merger is in the works for two of the world’s largest integrated oil and gas firms, Royal Dutch Shell and BG Group. Reports have Shell offering an estimated £47 billion (around $70 billion). At the close of business on April 7 BG had a market capitalization of about £31 billion.
The merger, while increasing Shell’s market capitalization, still leaves US supermajor ExxonMobil at the top of the rankings.
The boards from both BG and Shell revealed early April 8 that they had reached an agreement on a recommended cash and share offer. Under the terms of the agreement BG shareholders would be entitled to 383 pence in cash and 0.4454 Shell B shares. Based on a 90 trading volume weighted average price of 2,170.3 pence per Shell B share on April 7, the terms of the combination represent BG being valued at approximately 1,350 pence per share, a premium of 52% to the 90-day trading volume.
The combination of the two majors will result in BG shareholders holding about 19% of the combined company. It will also result in Shell increasing its proved oil and gas reserves by 25% and its production by 20%.
Commenting on today’s announcement, Jorma Ollila, Chairman of Shell said: “This is an important transaction for Shell, accelerating the delivery of our strategy for shareholders. The result will be a more competitive, stronger company for both sets of shareholders in today’s volatile oil price world. BG shareholders will receive significant value through the premium being offered for their shares. They will become shareholders in Shell, accessing an attractive dividend policy, a share in the significant synergies and the compelling upside and enhanced operating capability of the combined group. We believe that the combination is in the interests of both our companies and their shareholders.”
Commenting on the combination, Ben van Beurden, CEO of Shell said: “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. At the start of 2014, Shell embarked on an improvement program, including divestments and the restructuring of underperforming businesses, whilst at the same time delivering profitable new projects for shareholders. This program is delivering, at the bottom line.
“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. Furthermore, 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.
“This transaction will be a springboard for a faster rate of portfolio change, particularly in exploration and other long term plays. We will be concentrating on fewer themes, and at a larger scale, to drive profitability and balance risk, and unlock more value from the combined portfolios. 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: “This 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.”
Also commenting, Helge Lund, CEO of BG said: “The offer from Shell delivers attractive returns to shareholders and has strong strategic logic. BG’s deep water positions and strengths in exploration, liquefaction and LNG shipping and marketing will combine well with Shell’s scale, development expertise and financial strength. The consolidated business will be strongly placed to develop the growth projects in BG’s portfolio. The transaction will take time to complete, during which my team and I will remain committed to BG and our shareholders, and to safely delivering our 2015 business plan.”
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