Daily Management Review

China Green Signal to Shell - BG $70 Billion Deal


12/14/2015




China Green Signal to Shell - BG $70 Billion Deal
Royal Dutch Shell received the green light from China on Monday to finally complete its takeover by crossing the last hurdle in its takeover of BG Group.
 
Now the last hurdle for the completion of deal, expected to be completed in early 2016, is the ratification from the shareholders through a voting process.
 
With a focus on the Brazil's rapidly-developing sub-salt oil basin, the merger of the two companies would transform Shell into the world's top liquefied natural gas (LNG) trader and a major offshore oil producer. The Brazil's sub-salt oil basin would enable the company to present competition to Exxon Mobil's position as the world’s biggest international oil company.
 
Mandatory and unconditional approvals for the $70 billion deal – tipped to be the biggest in the sector in over a decade, had already been obtained from Australia, Brazil and the European Union.
 
The news of the approval helped increase Shell share value by 2%.
 
There were reports last month that the Chinese Ministry of Commerce had pressurized Shell to get into long-term LNG supply contracts with the country as the largest energy consumer of the world faces a large surfeit over the next five years.
 
Shell has had to battle a slump in oil prices and investor concerns over the financial merits of the deal in the face of an extended period of weak energy prices, ever since the announcement of the deal on April 8 this year at a time when the oil was at around $55 a barrel.

Shell - the Anglo-Dutch company slashed the combined group's planned investment program in order to create a "more resilient and competitive" business. The company also plans to make a consolidated cost savings of $3.5 billion. It also announced plans for $30 billion in asset disposals to pay for the acquisition while maintaining the cherished dividend.
 
Shell and BG turn their focus to shareholders and will publish within weeks a prospectus containing information on the deal and the change in the share structure after having completed all of the approvals from the various countries associated with the deal. The dates when the deal would be finally put to vote during the general shareholder meeting would also be announced soon.  
 
"We will now seek approval from both sets of shareholders as we move toward deal completion in early 2016," Shell CEO Ben van Beurden said, according to the company statement.
 
BG's small and relatively nimble operations are expected to be difficult to be merged with Shell's much larger structure even as the integration of the two companies has been planned by a joint committee in recent months.
 
There could be lob losses as more than 5,000 jobs at BG would tend to overlap with Shell's nearly 100,000-strong work force after the completion of the deal.
 
The deal would also create the largest public sector company of Britain has been under scrutiny as experts have questioned about the justification of Shell’s decision to go ahead with the acquisition with oil prices remaining so suppressed.

(Source:www.thetelegraph.co.uk & www.reuters.com) 






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