BY Fraser Tennant
In a major deal likely to be one of the largest undertaken in 2015, Royal Dutch Shell and the BG Group, the UK’s third-largest energy company, have reached an agreement which will see Shell buy the oil and gas exploration giant in a $70bn deal.
Once complete, the deal, a cash and shares offer which will see investors gain a 50 percent premium on BG’s share price, has the potential to create a company worth almost $300bn.
According to Shell’s summary terms and metrics, the deal: (i) represents a value per BG ordinary share of 1350p, a premium of 52 percent; (ii) values BG equity at $70bn; (iii) will see BG shareholders own 19 percent of Shell; (iv) is a transaction underpinned by intrinsic asset value of BG; (v) is mildly accretive to earnings per share in 2017 and strongly accretive from 2018; and (vi) is accretive to cash flow from operations per share from 2016.
“This is an important transaction for Shell, accelerating the delivery of our strategy for shareholders," said Jorma Ollila, chairman of Shell. “The result will be a more competitive, stronger company for both sets of shareholders in today’s volatile oil price world. We believe that the combination is in the interests of both our companies and their shareholders.”
Commenting on the deal, BG chief executive Helge Lund said: “The offer from Shell delivers attractive returns to shareholders and has strong strategic logic. 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.”
Despite Mr Lund’s commitment, the BG chief, who joined the firm as recently as February 2015 amidst controversy over his $35m-plus pay package, will “probably move along” from his position if the deal goes ahead according to Shell’s chief executive, Ben van Beurden.
The Shell/BG Group deal is expected to be concluded in early 2016 following regulatory and shareholder approvals, to be followed by a $25bn share buyback program commencing in 2017.