Shell acquires BG Group

Royal Dutch Shell said on Wednesday it had agreed to buy BG Group for 47 billion pounds (64.5 billion euros, $70.1 billion), which would be paid in both cash and shares.

The deal will value each BG share at around 1,350 pence - a premium of around 52 percent to the 90-day trading average. BG shareholders will own about 19 percent of the combined group.

According to Shell, the transaction should generate pre-tax synergies of around 2.5 billion pounds per year, with an expected dividend of $1.88 per ordinary share in 2015 and at least the same amount in 2016.

The biggest merger this year will give Shell access to BG's multi-billion-dollar operations in Brazil, East Africa, Australia, Kazakhstan and Egypt. These include some of the world's most ambitious liquefied natural gas (LNG) projects.

"We have been scanning quite a few opportunities, with BG always being at the top of the list of the prospects to combine with," Shell Chief Executive Ben van Beurden told a conference call. "We have two very strong portfolios combining globally in deep water and integrated gas."

Low oil prices fuel mergers

Van Beurden said the presence of two large firms in Australia, Brazil and China and the European Union might require a detailed conversation with anti-trust authorities but was unlikely to lead to forced asset sales.

Shell has long been seen as a potential purchaser thanks to its healthy cash flow and relatively low oil price breakeven. The company is able to maintain capital and operating expenses and pay a dividend when oil costs around $75 per barrel. However, BG's breakeven is as high as $145 per barrel, according to analyst estimates.

Last year, BG Chairman Andrew Gould hired CEO Helge Lund from Norway's Statoil to turn around the company. Gould said on Wednesday Lund would remain the CEO throughout the transition.

A logical step

However, it became evident on Wednesday that the merger was primarily masterminded by Shell's Van Beurden and Andrew Gould. It comes after oil prices halved since last June, putting a premium on access to proven assets rather than costly exploration.

"I called Andrew up and we had a very good and constructive discussion about the idea and it very quickly seemed to make sense to both of us," Van Beurden told a conference call.

"What has happened in last month, apart from it being a logical deal it has also become a very compelling deal from a value perspective," he added.

Shell said in a statement that the deal would boost its proved oil and gas reserves by 25 percent, and would give it better prospects in new projects. The company also said it planned to increase asset sales to $30 billion between 2016 and 2018 on the back of the deal.

Moreover, the company plans a share buyback program in 2017 of at least $25 billion for the period 2017 to 2020.

uhe/cjc (Reuters, dpa, AFP)