Daily Management Review

Shell Seals $53 Billion BG Deal and Announces Pursuing of Transition Plan


Shell Seals $53 Billion BG Deal and Announces Pursuing of Transition Plan
Even as slumping oil prices cast a shadow on the upcoming years of transition, Royal Dutch Shell sealed the $53 billion (36 billion pounds) acquisition of British rival BG Group. The new company thus formed becomes the world's top liquefied natural gas company.
Shell Chief Executive Ben van Beurden has been seeking to transform Shell into a more specialized group focused on the rapidly growing LNG market and deepwater oil production and the success or otherwise of the complex merger will define this legacy of the Chief Executive.
"We will now be able to shape a simpler, leaner, more competitive company, focusing on our core expertise in deep water and LNG," van Beurden said in a statement. In 2014, Shell acquired Repsol's LNG business.
While a number of major investors had voiced concerns that the forecast slow recovery in oil prices would strain Shell's financials and risk its growth plans, Van Beurden's vision won overwhelming support from shareholders.
Just behind Exxon Mobil Corp, the new company that would be created by the deal which was announced 10 months ago would leave behind Chevron to become the world's second-largest public oil and gas company by market value.
According to a statement, under the proposed mix and match deal BG shareholders largely opted to receive shares rather than cash. Dutchman Huibert Vigeveno had headed the integration planning team and he would also oversee the implementation of the deal as he becomes the head of the new company where BG would become a wholly-owned subsidiary of Shell.
Over the weekend, Shell's red-and-orange logo replaced the signs at BG's headquarters in Reading outside London, said company sources.  
Incumbent CEO Helge Lund is set to step down and has yet to indicate his plans. This , former head of Norwegian oil major Statoil had led it through a period of spectacular growth.
Shell has said that over the next three years it will sell $30 billion of assets and will cut thousands of jobs from the combined group. The money that would be obtained from the savings and sale would be done to finance the deal, buy back shares and support dividends, which it has vowed to maintain or increase.
As the world turns to less polluting sources of energy, Shell is betting heavily on a rapid growth in the global LNG market over coming decades. The merger is set to be a challenge even for 126-year-old Anglo-Dutch company due to the oil prices near a 12-year low, a struggling global economy and major restructuring under way of its oil and gas operations across the globe.
Shell saw its income drop 87 percent in 2015.
"The financials will work in time, admittedly perhaps not as originally hoped, but we still see this deal as accretive within a two- to three-year timeframe," said Jason Kenney, analyst at Grupo Santander. Shell's oil and gas production will increase to around 4.7 million barrels of oil equivalent by 2020 due to the acquisition, Santander said.
"The deal means Shell will have little need to explore near or medium term, or to invest in highly capital-intensive unconventional projects," Kenney added.

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