Standard Life is to vote against oil group Shell’s controversial plan to take over rival BG, branding the deal “value destructive” for shareholders at a time of plunging oil prices.
The high-profile move by one of the UK’s largest investment funds appears to be a last-ditch attempt to rally opposition to the £35bn bid at a time when Shell management is privately confident it has won over most doubters.
That sense of optimism was bolstered by the influential Institutional Shareholders Services (ISS), a proxy advisory body, recommending that Shell investors support the merger which could be concluded as early as next month.
Concern about the financial impact of the takeover on Shell’s balance sheet has battered its share price, which dropped a further 5% today. The dangers of the deal have grown with the oil price tumbling to 11-year lows.
David Cumming, head of equities at Standard Life Investments, said: “We have concluded that the proposed terms of the acquisition of BG are value destructive for Shell shareholders. This view is based on the downside risks to Shell’s oil price assumptions plus the tax and operational risks surrounding BG’s Brazilian asset base. Consequently we shall vote against the deal.”
Standard Life, which holds 0.4% of the A shares in Shell and 1.7 % of the B shares, said it had held meetings with the oil group to explain its views and try to get the chief executive, Ben van Beurden, to renegotiate better terms.
ISS said it was understandable that Shell investors would feel “discomfited” by the significant volatility in global crude prices but added: “It is worth recognising, however, that the spot price today may be of very little value in assessing the strategic opportunity of a transaction whose benefits will be realised over decades.“In particular. because of the compelling strategic rationale, and the significant positive economics to be realised within a relatively short timeframe, support for the transaction is warranted.”
Van Beurden and the Shell board need a majority of its shareholders and 75% of BG investors to back the deal for it to go through. Shell declined to comment on the Standard Life statement but industry sources said the oil company had drawn comfort from SIS plus positive statements from large investors such as Aberdeen Asset Management, Old Mutual and AXA.