8th Apr 2015 06:53
LONDON (Alliance News) - FTSE 100-listed oil and gas companies Royal Dutch Shell PLC and BG Group PLC on Wednesday said they have reached an agreement on a cash and shares takeover of BG by Shell, valuing BG at around GBP47 billion.
Under the terms of the deal, BG shareholders will get 383 pence in cash plus 0.4454 Shell B shares per BG share. Based on the 90 trading day volume weighted average price of 2,170.3 pence per Shell 'B' Share on April 7, the total value of the deal is 1,350.00 pence per BG share.
BG shares closed at 910.4 pence on Tuesday. BG said the price represents a premium of around 50% to its closing price on Tuesday.
The combination of the two giants will result in BG shareholders owning around 19% of the combined company.
Shell said it expects the combination of the two companies to improve its global liquefied natural gas operations, particularly in Australia, and its deep water operations, particularly in Brazil, and Shell has forecast that it will generate pre-tax synergies of around USD2.5 billion per year and said there are further "significant" opportunities.
"This is an important transaction for Shell, accelerating the delivery of our strategy for shareholders. The result will be a more competitive, stronger company for both sets of shareholders in today's volatile oil price world," said Jorma Ollila, Shell's chairman.
"The offer from Shell delivers attractive returns to shareholders and has strong strategic logic. BG's deep water positions and strengths in exploration, liquefaction and LNG shipping and marketing will combine well with Shell's scale, development expertise and financial strength," said BG Group Chief Executive Helge Lund.
Lund, who joined BG as CEO in February from Norwegian oil company Statoil SA, is set to stay on in the near term, though no clarity was provided on his long-term future with the combined organisation.
BG Group said its shareholders will benefit from the dividends paid to Shell shareholders in the near term. Shell said it plans to pay dividends of USD1.88 per share in 2015, adding that USD1.88 per share will also be the minimum payment in 2016.
In addition, Shell also plans to begin a share buyback programme in 2017 of at least USD25 billion for the period between 2017 and 2020.
"Over time, the combination will enhance our free cash flow potential, and our capacity to undertake share buybacks, where I expect to see a substantial increase in pace," said Shell Chief Executive Ben van Beurden.
"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," Lund added.
In the medium term, Shell said that the combination of BG and Shell, by 2020, will have two strategic growth businesses in the form of deep water and integrated gas which could generate between USD15 to USD20 billion of cash flow per year alongside upstream and downstream businesses that could also generate a combined USD15 to USD20 billion in cash flow.
Overall, Shell is expecting the merger to be "mildly accretive" to its earnings per share in 2017, and "strongly accretive" in 2018 onwards, but said it will start to fell the benefits of improved cash flow from 2016.
Shell is expecting asset sales to increase to USD30.0 billion in the period between 2016 to 2018, it said.
"This transaction will be a springboard for a faster rate of portfolio change, particularly in exploration and other long term plays. We will be concentrating on fewer themes, and at a larger scale, to drive profitability and balance risk, and unlock more value from the combined portfolios," said van Beurden.
"The BG board remains confident in BG's long-term prospects under the leadership of Helge Lund. Shell's offer, however, allows us to accelerate and de-risk the delivery of this value. The structure of the offer will provide BG shareholders with an attractive premium and a substantial cash return as well as enabling them, if they wish, to participate in the benefits of the combination through the share component. For these reasons, the BG Board recommends the offer," said BG Chairman Andrew Gould.
By Joshua Warner; [email protected]; @JoshAlliance. Additional reporting by Sam Unsted; [email protected]; @SamUAtAlliance.
Copyright 2015 Alliance News Limited. All Rights Reserved.
Related Shares:
BG..L