Shell takeover of BG Group still on track despite shareholder doubts

Falling oil prices have led to concerns that $60bn deal is overpriced but Shell expects to complete transaction early in 2016

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.


Sean Farrell

The GuardianTramp

Related Content

Article image
Shell shareholders vote for BG Group takeover despite opposition
More than 80% of investors support deal, but Shell chief Ben van Beurden must win BG investors’ backing to complete merger

Terry Macalister Energy editor

27, Jan, 2016 @2:25 PM

Article image
Shell still has to prove its BG Group takeover is a slick deal
As its £55bn purchase moves closer, falling oil prices mean Shell’s offer is less compelling than when first announced

Nils Pratley

02, Sep, 2015 @7:09 PM

Article image
Shell to shed further 2,800 jobs after BG takeover
Cuts will affect 3% of global workforce as Anglo-Dutch oil giant seeks to cut costs to cope with oil price slump and rationalise operations after £40bn deal

Sean Farrell

14, Dec, 2015 @12:38 PM

Article image
Time for Shell boss to master art of renegotiation
While it would be embarrassing for Ben van Beurden to push BG Group for better terms at the 11th hour, embarrassment should not enter the equation

Nils Pratley

14, Dec, 2015 @7:25 PM

Article image
Shell vows to sell $10bn extra assets as profits plunge 87%
Collapse in oil price hammers profits as BG takeover looms but CEO pledges not to conduct a fire sale or cut more jobs

Terry Macalister Energy editor

04, Feb, 2016 @10:43 AM

Article image
Shell warns of 50% cut in profits amid plunging oil price
Annual figures likely to be further hit by up to $7bn in writedowns as takeover deadline for rival BG looms

Terry Macalister

20, Jan, 2016 @8:11 AM

Article image
Shell makes further cost cuts of £650m to keep BG takeover on track
Oil company says doubling cost savings will help make deal to be completed next year work in face of low price per barrel

Sean Farrell

03, Nov, 2015 @12:43 PM

Article image
£35bn Shell takeover approved by BG shareholders
The cash-and-shares deal will create a major new oil and gas group in Europe to rival ExxonMobil in the US

Terry Macalister

28, Jan, 2016 @8:50 PM

Article image
Shell takeover of BG: what the analysts say
Oil and gas experts give their verdicts on what this deal means for the industry, energy markets and business in general

Julia Kollewe

08, Apr, 2015 @10:05 AM

Article image
Shell agrees to buy BG Group for £47bn
One of the largest takeovers in oil sector for 20 years comes after fall in crude prices, as gas group’s CEO looks set to receive £25m in exit pay deal

Julia Kollewe and Sean Farrell

08, Apr, 2015 @1:21 PM