Anglo-Dutch oil and gas multinational Royal Dutch Shell announced that it will buy oil and gas exploration firm BG Group in an agreed deal that values the business at £47bn (US$70bn/€65bn).
The cash-and-shares offer gives investors a 50% premium on BG Group’s share price on April 7.
The deal promises to be among the biggest of 2015 and could produce a company with a value exceeding £200bn. Shell’s market capitalisation stands at £177bn, while BG’s has fallen to £31bn following a 20% decline in its share price over the past year.
BG Group is the UK’s third largest energy company, and currently employs about 5,200 people in 24 countries. It was created in 1997 when British Gas demerged into two separate companies: BG and Centrica.
BG took control of exploration and production while Centrica took charge of the UK retail business of the former British Gas. In 2000, BG split into BG Group and Lattice Group.
Shell said the deal would also add 25% to its proven oil and gas reserves and 20% to production capacity, particularly in Australia’s liquid natural gas (LNG) market and in deep water oil exploration off the Brazilian coast. The group also plans to undertake a share buyback programme in 2017 of at least US$25bn.
Investec analyst Neil Morton told BBC News that a tie-up between the companies had “been mooted for about 20 years”.
“BG investors receive what we see as a compelling offer. For Shell shareholders, we are less convinced of the merits,” he added. “The deal is predicated on a strong recovery in oil prices (US$90 per barrel from 2018), while we suspect that Shell is pouncing on BGs imminent free cash flow to protect its burdensome dividend payout.”
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