Shell-BG Deal Pays out $600 million in Tax, Fees

The UK finance ministry stands to make close to $300 million and banks, law firms and other advisers will receive as much again, if the Shell-BG takeover gets the go-ahead later this month.

There are less than three weeks to go until the Anglo-Dutch major’s general meeting on January 27th when shareholders vote on the takeover. BG’s own shareholders will vote a day later. 

The deal is now worth about $53 billion, down from the initial $70 billion, thanks ultimately to low oil prices. Of that roughly 1% goes in payments, including the UK government’s 0.5% in Stamp Duty.

If it goes ahead, BG will pay $141.6-$158 million to its service providers while Shell will pay $446-467 million, according to the prospectus for the deal, published on December 22nd last year. But Shell will have to pay close to $1 billion in fees if it cannot sell the deal to its shareholders.

How it cuts up

Goldman Sachs, with a small partner, Robey Warshaw, is BG's financial adviser and together they stand to collect up to $113.6 million for "financial and corporate broking advice." On the Shell side of the deal, BoA Merrill Lynch would collect $72 million for "financing arrangements" and at least part of $47-$62 million for "financial and corporate broking advice." Shell would also spend up to $35 million on legal advice (Cravath, Swaine & Moore, Slaughter & May, De Brauw Blackstone Westbroek); $16 million on accounting advice (Deloitte); up to $7 million on public relations advice (Finsbury), $6 million on other professional services and $269 million on the 0.5% stamp duty, the British treasury's cut from the deal. BG would pay up to $24.2 million for legal advice (Freshfields Bruckhaus Deringer), up to $3.2 million for accounting advice, up to $8.6 million for public relations advice, up to $0.9 million for professional services and up to $7.5 million for other costs and expenses.

Shell management, led by CEO Ben van Beurden, is determined to consummate the deal. Last month, when the oil price dropped below $40, the company said that a mid-$60s price was the break-even point for the deal, down from $80-$90 when the deal was announced in April last year. Shell is looking at the deal from the long-term perspective, and are confident that anyway prices will eventually recover.

But one of the most important aspects of the deal was to consolidate Shell’s position as the leading player in the LNG market. Pipeline gas and LNG prices are less likely to go up even if oil recovers though, according to the latest assumptions. Delinkage from oil, combined with much more LNG coming on stream from the US and Australia in particular, will continue to depress prices in the near-term at least. So Shell’s shareholders will be worrying about their dividends in the coming few years after the deal and wondering if other companies’ stocks might represent better value.

If Shell walks away from the deal it is exposed to a $750 million breakup fee to BG and another $200 million to service providers.