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Shell in talks to buy UK gas producer BG Group Shell launches agreed £47bn bid for UK gas producer BG Group
(about 7 hours later)
Oil giant Royal Dutch Shell is in talks to buy gas group BG in a multibillion-pound deal that would be one of the biggest oil and gas sector deals in the last 20 years. Oil giant Royal Dutch Shell has agreed a £47bn takeover of gas group BG in one of the biggest deals seen in the oil and gas sector in the last 20 years.
BG confirmed on Tuesday night that it was in negotiations with its rival. Shell is likely to have to pay around $46bn (£31bn) to gain control. BG confirmed on Wednesday that it was offering a cash and shares deal worth £13.67 a share - a 50% premium on BG’s market value on Tuesday night, when news of the deal first leaked.
In a statement the company said: “The board of BG Group confirms that it is in advanced discussions with Royal Dutch Shell regarding a possible offer by Shell for BG.” The statement added that there was no certainty a deal would be reached, but said “a further announcement will be made shortly”. Ben van Beurden, chief executive of Shell, said: “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.”
The transaction would be the biggest this year and the fourth largest oil and gas deal globally since 1996. Shell chairman, Jorma Ollila, said the deal was an important one for Shell: “The result will be a more competitive, stronger company for both sets of shareholders in today’s volatile oil price world.”
The transaction will be the biggest this year and the fourth largest oil and gas deal globally since 1996.
Shell said the deal would create pretax cost savings of about $2.5bn a year. It will add some 25% to the company’s proved oil and gas reserves and 20% to production, as well as strengthening its position in new oil and gas projects, particularly in Australia LNG and Brazil deep water. BG and Shell both have huge interests in the LNG market – liquefied natural gas that can be shipped around the world in tankers.
When the stockmarket closed on Tuesday, BG group – which has 5,200 employees and was once part of the nationalised British Gas business – was valued at some £31bn. It also has debt of around £8bn.When the stockmarket closed on Tuesday, BG group – which has 5,200 employees and was once part of the nationalised British Gas business – was valued at some £31bn. It also has debt of around £8bn.
Like other companies operating in the oil and gas business, BG has been hit hard in recent months by falling prices. A glut of oil has seen the price fall nearly 50%, to around $59, since last summer.Like other companies operating in the oil and gas business, BG has been hit hard in recent months by falling prices. A glut of oil has seen the price fall nearly 50%, to around $59, since last summer.
The company’s profits were down nearly 20%, to just over $900m, in the three months to the end of last year.The company’s profits were down nearly 20%, to just over $900m, in the three months to the end of last year.
Shell’s stockmarket value is around £135bn, and many City analysts had been expecting the firm to mount a takeover.Shell’s stockmarket value is around £135bn, and many City analysts had been expecting the firm to mount a takeover.
The vast Anglo-Dutch business has also been affected by falling oil prices. Only two weeks ago it unveiled 250 job cuts in the North Sea and changes to shift patterns for North Sea workers in a bid to cut costs.The vast Anglo-Dutch business has also been affected by falling oil prices. Only two weeks ago it unveiled 250 job cuts in the North Sea and changes to shift patterns for North Sea workers in a bid to cut costs.
But Shell is a strong enough business to be in a position to buy assets in order to be well placed to cash in when prices eventually rebound. Buying proven oil and gas assets when prices have fallen is far cheaper than exploring for new reserves.But Shell is a strong enough business to be in a position to buy assets in order to be well placed to cash in when prices eventually rebound. Buying proven oil and gas assets when prices have fallen is far cheaper than exploring for new reserves.
Oil executives have been predicting a round of consolidation among oil and gas companies as a result of the lower oil price, as was witnessed in the 1990s, when BP and Exxon both snapped up rivals.Oil executives have been predicting a round of consolidation among oil and gas companies as a result of the lower oil price, as was witnessed in the 1990s, when BP and Exxon both snapped up rivals.
Shell’s chief financial officer, Simon Henry, said in January that the company was not ruling out buying assets that would increase its production base.
BG and Shell both have huge interests in the LNG market – gas that can be shipped around the world in tankers.
BG has had a difficult couple of years. Once a stockmarket favourite, it fell out of favour as its performance faltered. Its shares are down around 30% on a year ago.BG has had a difficult couple of years. Once a stockmarket favourite, it fell out of favour as its performance faltered. Its shares are down around 30% on a year ago.
BG’s chief executive departed nearly a year ago and the group’s chairman Andrew Gould took over, saying it was key that BG “accelerate the creation and delivery of longer-term value for our shareholders”.BG’s chief executive departed nearly a year ago and the group’s chairman Andrew Gould took over, saying it was key that BG “accelerate the creation and delivery of longer-term value for our shareholders”.
At that time there was widespread speculation that BG would become a takeover target, with many City oil experts predicting Exxon would make a move on the British business.At that time there was widespread speculation that BG would become a takeover target, with many City oil experts predicting Exxon would make a move on the British business.
BG’s directors recently faced rebellion among its shareholders for plans to reward a new boss, Helge Lund, with a £25m pay package.BG’s directors recently faced rebellion among its shareholders for plans to reward a new boss, Helge Lund, with a £25m pay package.
In order to avoid an embarrassing protest vote, Lund – lured to BG from his previous position as chief executive of Norway’s Statoil – agreed to accept less and for his bonuses to have more stretching targets. Last week the BG board admitted it “did not strike the correct balance” on pay when it offered Lund the first deal.In order to avoid an embarrassing protest vote, Lund – lured to BG from his previous position as chief executive of Norway’s Statoil – agreed to accept less and for his bonuses to have more stretching targets. Last week the BG board admitted it “did not strike the correct balance” on pay when it offered Lund the first deal.
Lund, who is BG’s third boss in three years, joined BG in February and last week he hired two former Statoil executives, including Katie Jackson as vice-president for global strategy and business development.Lund, who is BG’s third boss in three years, joined BG in February and last week he hired two former Statoil executives, including Katie Jackson as vice-president for global strategy and business development.
Jackson had been responsible for merger and acquisition deals at Statoil under Lund’s leadership.Jackson had been responsible for merger and acquisition deals at Statoil under Lund’s leadership.