Royal Dutch Shell to acquire BG Group for approximately £47 billion

Royal Dutch Shell has announced a mega-takeover of British BG Group for a total consideration of £47 billion (US$70 billion).

The transaction, which represents a premium of approximately 50 % compared with BG Group's closing share price yesterday, will result in BG shareholders owning approximately 19% of the combined group.

The deal is expected to accelerate Shell's growth strategy in global LNG and deep water. It will add 25% to Shell’s proved oil and gas reserves and 20% to production. According to shell the combination has potential to generate pre-tax synergies of approximately US$2.5 billion per annum.

According to a press released by the two firms, Shell believes that, by around 2020, the combined group will have:

• two strategic growth businesses – deep water and integrated gas – that could potentially each generate $15-$20 billion of cash flow from operations per annum;
• upstream and downstream engines that could potentially generate a further combined $15-$20 billion of cash flow from operations per annum in total; and
• long-term positions which could potentially add around a further $10 billion of cash flow from operations per annum.

Jorma Ollila, Chairman of Shell stated:

“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. BG shareholders will receive significant value through the premium being offered for their shares. They will become shareholders in Shell, accessing an attractive dividend policy, a share in the significant synergies and the compelling upside and enhanced operating capability of the combined group. We believe that the combination is in the interests of both our companies and their shareholders.”

“Bold, strategic moves shape our industry. BG and Shell are a great fit. This transaction fits with our strategy and our read on the industry landscape around us. At the start of 2014, Shell embarked on an improvement programme, including divestments and the restructuring of underperforming businesses, whilst at the same time delivering profitable new projects for shareholders. This programme is delivering, at the bottom line.

BG will accelerate Shell’s financial growth strategy, particularly in deep water and liquefied natural gas: two of Shell's growth priorities and areas where the company is already one of the industry leaders. Furthermore, the addition of BG's competitive natural gas positions makes strategic sense, ahead of the long-term growth in demand we see for this cleaner-burning fuel. 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. 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.”