Shell to buy BG Group for £47bn in the second largest ever oil and gas deal

8th April 2015


Royal Dutch Shell has agreed to buy BG Group for £47bn, in the biggest oil and gas deal for 17 years.

BG Group was formed in 1997 when British Gas split into two separate companies: BG Group and Centrica.

It is the UK’s third largest energy company  and it took over oil and gas exploration and production while Centrica took on the UK retail business and the brand name British Gas.

Shell and BG Group have agreed a cash and share offer that gives investors a 50% premium on BG Group’s share price on 7 April.

It could be one of the largest takeovers of  2015, creating a company valued at over £200bn, according to the BBC.

BG Group’s shares opened up 42% on the London Stock Exchange at 1,293.5p.

Shell’s market capitalisation is £177bn, while that of BG stands at £31bn after a 20% fall in its share price in the past year.

Shell said BG Group shareholders would receive higher dividends, and offered to pay its existing shareholders $1.88 per ordinary share this year. BG Group shareholders can expect to receive a dividend of just $0.14 this year.

BG shareholders will receive £3.83 in cash and 0.45 Shell B shares. They will own approximately 19% of the combined group following the deal.

It is the biggest deal since the oil price collapse, the biggest oil and gas deal for 17 years and the second biggest oil and gas deal ever on record, after Exxon and Mobil’s $75.3bn merger in 1998, according to Dealogic.

Shell expects to make $2.5bn of savings through the deal. It will add 25% to its proven oil and gas reserves and 20% to production capacity.

The price of oil has plunged by about 50% in the past six months, causing BG Group to warn in February that it would write down the value of its oil and gas assets by nearly £6bn.

In the Budget last month, the Chancellor reduced the supplementary corporation tax levied against oil companies that operate in the North Sea.

Shell chief executive Ben van Beurden said he remained committed to North Sea oil and plans to invest £4bn between 2016 and 2018.

BG Group chief executive Helge Lunde is expected to depart.

Ian Forrest, investment research analyst at The Share Centre, says: “This morning, Royal Dutch Shell announced a deal to buy fellow oil and gas group BG.

“The deal looks attractive for investors, especially those seeking a higher level of income. It offers a mixture of cash and shares which value each BG share at £13.67, based on yesterday’s closing price. This makes for a premium of 50%, a level not seen for over a year. BG has long been seen as a takeover target, while Royal Dutch Shell has been pondering its acquisition options for a while.

“BG’s shares have been hit hard by the fall in oil price, and have traded close to a five-year low for several months, with only a modest dividend to provide some comfort for its shareholders. That last point has not gone unnoticed by Shell which has paid very good dividends for many years. It has a significant cash pile and expects to see that boosted further by the deal. As a result it has announced its intention to pay dividends of $1.88 this year, and at least that amount next year. On top of that it plans to start a $25bn share buyback scheme to run from 2017 to 2020.

Forrest adds: “For Royal Dutch Shell the logic of the deal is clear – it would instantly turn the group into the largest independent natural gas producer in the world with the resources to fully exploit BG’s vast fields in East Africa, Brazil and Australia.

“For existing BG investors seeking income this is a good offer. We also retain our ‘buy’ recommendation on Shell for lower risk investors seeking income, due to the potential benefits of the deal and the boost to future dividends.”

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