Shell to buy BG Group for $69bn
Following a turbulent few months during which falling oil prices have resulted in thousands of job cuts, billions of dollars in stranded assets and a string of less-than-impressive earnings, Royal Dutch Shell has reached an agreement with BG Group to acquire the smaller rival for $69.6bn. The deal, made up of both shares and cash, represents a 52 percent premium price on BG’s shares, as of April 7, and could create a new entity worth close to $300bn.
In the past six months, the price of oil has plummeted some 50 percent, and even the biggest names in the business are struggling to acclimatise to a new low price environment. However, the acquisition, which represents one of the biggest of the year so far, will go some way towards bolstering Shell’s competencies in deep water and LNG.
The combined group will add 25 percent to Shell’s proven oil and gas reserves, whilst also adding another 20 percent onto existing production. The combination also means that BG shareholders will benefit from the dividends enjoyed currently by Shell’s own shareholders and generate tax synergies of close to $2.5bn per annum.
By buying into a lesser rival, Shell is able to increase its reserves base using methods apart from exploration, which, in the current climate, is proving increasingly costly.
“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,” said Jorma Ollila, Chairman of Shell, in a statement. “Bold, strategic moves shape our industry. BG and Shell are a great fit. This transaction fits with our strategy and our read on the industry landscape around us,” added the Shell CEO Ben van Beurden.
