LONDON — Royal Dutch Shell’s takeover of the BG Group may look less attractive after the slide in oil prices, but the fact that the same investors own nearly half of both firms means that the deal is still likely to go through.
Investors holding about 43% of Shell’s shares also hold 53% of BG, according to Reuters data. For example, Blackrock, Franklin Mutual Advisers and Norges together hold more than 12% of Shell and nearly 7.5% of BG.
Investors will be voting separately on the deal at meetings expected next month after the takeover received its final regulatory seal from China this week. A rejection of the takeover could entail losses all round, making it more painful for those with shares in both companies.
BG shares were likely to collapse, while Shell would lose a rare opportunity to increase its production base over the next few decades by snapping up a smaller company with some important assets, investors and analysts say.
“I think the vote will be positive for the deal,” said Niels Lammerts van Bueren, portfolio manager at TRZ Funds, which trades shares in both companies. “Indeed, with the cross-holdings very few holders will be voting against as that will cost them money.”
Few investors and analysts have challenged the strategic sense of a merger that will make Shell the world’s top liquefied natural gas trader and a major player in Brazil’s rapidly developing offshore oil production.
But the 30% slump in oil prices to less than $40 a barrel since the takeover was announced in April has left investors worrying about whether Shell will be able to maintain its dividend if the $54bn takeover goes through.
Shell’s acquisition of BG is largely based on the assumption that oil prices will rise over time to cover the relatively high costs of production in countries such as Australia and Brazil.
The deal, which offered a 50% premium to BG’s April 7 share price and was worth $70bn then, includes a cash payment, which Shell plans to cover by increasing its debt.
Like its rivals, Shell slashed its spending this year by about 20%, cut thousands of jobs, delayed or scrapped huge projects and increased borrowing in the face of the oil price slump, but maintained its dividend payouts.
The Anglo-Dutch company has announced further cost savings and job cuts when the deal is completed, which it said would allow it to cope with a low oil price environment.
While investor concerns remain and Shell shares have trailed those of its rivals in recent months, the chances of an investor revolt are slim, according to analysts and investors. A majority of voting BG shareholders, who also represent at least 75% of the outstanding shares, must approve the deal for it to pass. For Shell, it requires a majority.
“There is good industrial logic for the two companies to be put together and the potential synergies may well be even more valuable in the current tough environment for oil companies,” said Richard Marwood, senior investment manager at AXA Investment Managers, which owns Shell and BG stock.
Shell CEO Ben van Beurden and chief financial officer Simon Henry have held numerous meetings this year with investors around the world to bolster support.
“Shell have played their hand and need to close. The last thing they want is for BG to end up back on the market at a lower price,” said Robin Milway, a portfolio manager at EFG Asset Management, which owns both stocks.
The takeover had more impetus following last week’s climate deal in Paris because it was expected to boost demand for less-polluting natural gas, said Richard Hulf, manager of Artemis Global Energy Fund, an investor in Shell and BG.
“The other key part of the deal is phenomenal growth in Brazilian production. The timing is impeccable.
“Add to that the fall of Petrobras and you have even more of the world’s best upstream assets falling into Shell’s lap. It’s all good,” Mr Hulf said.
Reuters
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