Shell Set to Complete BG Takeover by the End of February
Shell expects to complete the takeover of BG by the end of February, according to a circular the company released this week.
The cash and shares transaction, which at the time of its announcement was estimated at $70 billion, is now estimated at $53 billion following the continuous drop in oil and gas prices, followed by a drop of 29% in Shell share price.
However, despite the headwind and skepticism from some corners of the industry, analysts in particular, Shell management is pushing for the completion of the deal under its original term. That means BG shareholders will be entitled for 0.4454 Shell share plus 383 pence in cash for each BG share. According to the circular, the offer represents a value of 1,037 pence for a BG share, a premium of 5.1% percent on the closing price of the share price in London today (Thursday) at 986.5 p.
Shell and BG set a timetable for the completion of the takeover. Shell will have a General Meeting on 27 January 2016 in which 50% of the shareholders have to support the deal in order to approve it and BG will convene a General Meeting a day later and needs 70% of shareholders to support the deal. Both companies will publish their annual reports by the beginning of February 2016 and the effective day for the transaction will be 15 February and the process would end within 10 days.
In the circular, Shell said that next year the company, including BG, will cut $2 billion from its capital investment to $33 billion on top of $1 billion capital investment saved in the last quarter.
As part of the reorganization following the deal and the deteriorating oil prices, Shell already announced layoffs of 10,300 company and contract employees. This week the company also announced a planned asset sale of $30 billion by 2018 in order to reduce its debt. Shell also said that for 2015 the company will pay a dividend of $1.88 a share and not less than that in 2016. In addition Shell will operate a shares buyback program for the years 2017 to 2020 though its scope was not disclosed.
Shell said that in 2015 its operation costs are expected to fall by $4 billion to $41 billion and the next year by another $3 billion.
As for the economic value of the acquisition, Shell said the breakeven point is Brent oil price in the low $60s. That is more than 50% higher than the current Brent price, at less than $38 (24.12, 18:25 GMT). When the deal was announced breakeven point was estimated by analysts at $90. The deal would contribute to free cash flow at Brent price in the low $50s, according to Shell.
Should oil price and shares fall dramatically over the next few weeks, making the deal much less attractive, Shell can still go away from the deal and pay BG $750 million in breakup fee. And the management would probably pay with their jobs.
Ya'acov Zalel