Royal Dutch Shell has confirmed plans to buy BG group, the oil and gas exploration firm, in a deal worth an estimated £47bn.
The agreement involves a cash and shares offer which allows investors a 50% premium on BG Group’s share price on 7 April. It has been forecast as one of the biggest deals of 2015, and may well produce a company with a worth surplus of £200bn.
Shell dominates the market with a £177bn worth, overshadowing that of BG who upholds £31bn- following a 20% fall in their share price last year, due largely to the drop in oil prices.
The BG Group stands as the UK’s third largest energy company, working in over 24 countries and employing 5,200 people. Shell have commented that the deal will allow BG Group shareholders higher dividends, paying existing shareholders $1.88 per ordinary share, a substantial increase on the $0.14 dividend that BG Group shareholders would expect this year.
The deal will also mean bigger investment into Shell’s proven oil and gas reserves by 25% and 20% to production capacity, especially in Australia’s liquid natural gas (LNG) market and Brazil deep water oil exploration.
Neil Morton, Investec analyst, revealed doubts about the outcome for Shell shareholders as: “The deal is predicated on a strong recovery in oil prices ($90 per barrel from 2018), while we suspect that Shell is pouncing on BG’s imminent free cash flow to protect its burdensome dividend pay-out.”
Whilst Christian Stadler, associate professor of strategic management at Warwick Business School argued a more positive outlook for Shell consumers stating that “Shell has a very good track record in offshore oil and gas fields, and BG will help them solidify this area.”
The acquisition stands to push Shell above its competitors such as Chevron and ExxonMobil, in choosing BG Group specifically Shell is able to increase their reserve base without having to injure the tough job of exploration, or risking shale.
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