Shell To Buy BG Group In £47 Billion Deal



Sumit Dutta
04/08/2015

Supermajor Royal Dutch Shell today agreed to buy exploration firm BG Group in a deal valued at £47 billion.

The two firms say they have reached agreement on a cash and shares offer which gives investors a 50% premium on BG Group's share price on 7 April. It is expected that the deal could result in a company worth more than £200 billion ($296 billion).

BG Group was created in 1997 after British Gas was split into Centrica and BG Group. Centrica handles the UK retail business while BG Group, the UK's third largest energy company, controls oil and gas exploration and production and currently employs more than 5,000 people in 24 countries.


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WHAT YOU NEED TO KNOW

  • The Combination will result in BG Shareholders owning approximately 19% of the Combined Group.
  • Shell expects the Combination to accelerate its growth strategy in global LNG and deep water.
  • The Combination will add some 25% to Shell’s proved oil and gas reservesand 20% to production, each on a 2014 basis, and provide Shell with enhanced positions in competitive new oil and gas projects, particularly in Australia LNG and Brazil deep water.
  • Shell CEO Ben van Beurden claims they are committed to North Sea oil and expected to invest £4bn between 2016 and 2018.
  • The Combination has the potential to unlock further value for both sets of shareholders from the combined portfolio. An enhanced set of upstream positions will be a springboard to high-grade the Combined Group’s longer term portfolio, increase asset sales and reduce capital investment, thereby enhancing the combined Group’s capacity to pay dividends and undertake share buybacks.
  • Shell expects the Combination to generate pre-tax savings of approximately $2.5 billion per annum and has also identified further significant opportunities.

WHAT THEY SAID

Commenting on today’s deal, 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 he 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."

Shell CEO Ben van Beurden remarked "Bold, strategic moves shape our industry. BG and Shell are a great fit. This transaction fits with our strategy and our read on he industry landscape around us. At the start of 2014, Shell embarked on an improvement programme, including divestments and the restructuring of underperforming businesses, whilst at the same time delivering profitable new projects for shareholders. This programme 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 or a faster rate of portfolio change, particularly in exploration and other long term lays. 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."

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Andrew Gould, Chairman of BG had this to say: "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 substantial cash return as well s 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."

Helge Lund, CEO of BG added: "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."