Royal Dutch Shell Group agreed to buy smaller rival BG Group for US$70 billion in the first oil megamerger in more than a decade to close its gap with the world’s largest oil firm, ExxonMobil Corp of the US.
In a joint statement, the two firms said Shell would pay a mix of cash and shares that would value each BG share at about ￡13.50. It said this represented a premium of about 52 percent over the 90-day trading average.
Britain’s BG had a market capitalization of US$46 billion as of Tuesday’s close in London, Shell was worth US$202 billion while Exxon, the world’s largest oil company by market value, was worth US$360 billion.
“We have two very strong portfolios combining globally in deep water and integrated gas,” Shell chief executive Ben van Beurden told a news conference.
The deal would give Anglo-Dutch Shell access to BG’s multibillion dollar projects in Brazil, east Africa, Australia, Kazakhstan and Egypt, including some of the world’s most ambitious liquefied natural gas projects.
Van Beurden said the presence of two large firms in Australia, Brazil and China and the EU might require a detailed conversation with antitrust authorities.
The collapse in global oil prices has sparked much speculation about mergers in the industry and BG has often been cited as a potential target.
The merger is the biggest announced deal globally this year.
BG shares have tumbled nearly 28 percent since mid-June last year, when the slump in global oil prices started. That compares with a 17.2 percent decline in the FTSE All Share Oil and Gas Index and a 3.3 percent fall for Shell’s Amsterdam-listed shares.
In early trade in London yesterday, BG’s shares had risen 42 percent, while Shell’s were down 1.8 percent.
The halving in crude prices amid a shale oil boom in the US and a decision by Saudi Arabia not to cut production has created an environment similar to the early 2000s, when many large mergers took place.
Back then, oil major BP PLC acquired rival Amoco Corp and Atlantic Richfield Co, Exxon Corp bought Mobil Corp and Chevron Corp merged with Texas Co (Texaco).
If affirmed, the deal — with estimated pretax synergies of about ￡2.5 billion (US$3.7 billion) per year — would result in BG shareholders owning around 19 percent of the combined group.
The two groups said Shell would pay a dividend of US$1.88 per ordinary share this year and at least the same amount next year.
Shell also expects to start a share buyback program in 2017 of at least US$25 billion from 2017 to 2020.
Shell said the deal would boost its proven oil and gas reserves by 25 percent. The firm also plans to increase asset sales to US$30 billion from next year to 2018 on the back of the deal.
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