Royal Dutch Shell is pressing ahead with its $60bn (£40bn) takeover of BG Group despite doubts among some shareholders about the deal’s viability given the falling oil price.
Shell said it intends to publish its takeover prospectus on Tuesday with the company and BG planning to hold shareholder votes on the deal in late January. Shell said the deal would complete in the first few months of 2016.
China’s competition authority approved the acquisition last week, finishing the regulatory agreements needed before the deal moves towards completion.
Some Shell shareholders believe the company is paying over the odds for BG because the deal was agreed in April on the assumption that oil prices would recover to $90 a barrel by 2020. The price of oil has slumped from $115 a barrel in summer 2014 to less than $40. On Monday it dropped to an 11-year low of $36.17.
David Cumming, head of equities at Standard Life Investments, said last week the deal does not make sense with the oil price so low. He called on Shell’s boss, Ben van Beurden, to pay a $750m break fee to scrap the deal or renegotiate the terms. The only other option is for shareholders to vote against the takeover, he said.
Shell has said the falling oil price is reflected in the value of the deal, which has dropped by $10bn since it was announced because Shell is using its own shares as part payment. But there is also an inflexible and substantial cash payment to BG shareholders. Shell’s proposed timetable indicates it intends to complete the deal without amending the terms.
BG is applying to the high court on Monday for approval to publish its scheme of arrangement document outlining the sale to its shareholders. If court approval is speedy, BG will publish the document on Tuesday and Shell will issue its prospectus on the same day.
Shell said: “Shell and BG announce that, following satisfaction of the final precondition to the recommended combination and with the unanimous approval of both boards, BG is today seeking the approval of the high court to publish its scheme document and convene the related shareholder meetings.”
Both companies need 50% shareholder approval plus one vote to approve the deal but BG also requires votes representing 75% of the total value of its shares in favour.
Analysts at Credit Suisse have argued the deal makes sense despite the lower oil price because it reduces Shell’s risk and makes it more efficient, providing protection for its dividend.
Shell’s shares, down by a third this year, were little changed at £14.68 by Monday lunchtime in London. BG shares rose 2% to 923p.