Royal Dutch Shell announced on Wednesday, April 8th that it was purchasing BG Group for around $70.2 billion. Analysts noted that this was the first major energy industry merger in over a decade. Others also pointed out that folding BG into Shell brought it very close in market cap to industry leader Exxon Mobil.
Christian Stadler, an associate professor of strategic management at Warwick Business School in the UK, commented that the transaction “could be the beginning of a new wave of mega-mergers in the sector.”
Alluvial Fund August 2020 Performance Update
More on Shell – BG deal
In its statement, Shell noted it will pay a mix of cash and shares in a bid that values each BG share at 1,350 pence. This represents a sweet 52% premium to the 90-day trading average for BG. This means that any counter-bid by another firm such as Exxon, which has said it would also use the oil markets downturn to expand, would have to top that high-end price.
Analysts point out that this is the third-biggest oil and gas deal ever by enterprise value, and will bring Shell new assets in Brazil, East Africa, Australia, Kazakhstan and Egypt, including several major liquefied natural gas projects.
Shell also noted the deal will increase its proven oil and gas reserves by 25%.
The deal was spearheaded by Shell CEO Ben van Beurden and BG Chairman Andrew Gould, and clearly puts a a premium on access to proven assets instead of more costly exploration. Also of note, very low interest rates have made it much easier to raise funds for large mergers.
Statement from Shell CEO
“We have been scanning quite a few opportunities, with BG always being at the top of the list of the prospects to combine with,” Van Beurden commented in a conference call Wednesday morning. “We have two very strong portfolios combining globally in deep water and integrated gas”.