European oil giant Royal Dutch Shell plc (RDS-B, RDSB.L, RDSA.L,RDS-A) agreed to acquire British oil and gas company BG Group Plc. (BG.L,BRGYY.PK) in a cash and stock deal valued at about 47 billion pounds or $69.78 billion. The deal is expected to close in early 2016.
BG Group had confirmed on Tuesday that it was in advanced talks regarding a possible takeover bid by Shell. The move comes at a time when the two European companies, like others in the industry, grapple with lower revenues following the fall in crude oil prices.
"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," Shell Chairman Jorma Ollila said in a statement.
This is one of the biggest deals struck in the oil and gas sector over the past two decades.
The recommended cash and share deal will see BG shareholders receiving 383 pence in cash, and 0.4454 Shell B shares for every each BG share held by them. This values the offer at about 1,367 pence per BG share based on the closing price of 2,208.5 pence per Shell B share on Tuesday.
The offer price represents a premium of about 50 percent over the closing price of 910.4 pence per BG share on Tuesday.
Following the closure of the deal, BG shareholders will end up owning about 19 percent of the combined group.
Shell and BG directors intend unanimously to recommend that their respective shareholders vote in favor of the deal at the general meeting. Shell expects the deal to mildly add to earnings in 2017 and strongly add to the profit from 2018 onwards.
Shell, one of the world's largest energy producers, expects the deal to accelerate its growth strategy in global LNG and deep water.
The combination will further develop Shell's competitive position as a major producer and supplier of LNG, including in the core growth regions of Asia and the Atlantic basin. Shell and BG will realize immediate benefits from their complementary LNG production operations.
The transaction will also add about 25 percent to Shell's proved oil and gas reserves and 20 percent to production, each on a 2014 basis, and provide Shell with enhanced positions in competitive new oil and gas projects, particularly growth assets in Australia LNG and Brazil deep water.
Shell expects the deal to generate pre-tax synergies of about $2.5 billion per annum, comprising $1 billion of operating cost savings and a $1.5 billion reduction in exploration expenditure. It has also identified further significant opportunities.
Further, Shell confirmed its intention to pay dividends of $1.88 per ordinary share in 2015 and at least that amount in 2016. BG shareholders will be entitled to receive each Shell dividend for which the record date falls after completion of the combination.
"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," Ollila added.
Shell also said it expects to commence a share buyback program in 2017 of at least $25 billion for the period 2017 to 2020.
Shell noted that the combined group is expected to make substantial disposals of non-core operations following completion of the combination. Shell expects these disposals to reach $30 billion during 2016 to 2018.
In Wednesday's regular trading session, RDSB.L is currently trading on the LSE at 2,112.50 pence, down 96.00 pence or 4.35% on a volume of 2.27 million shares. Meanwhile, BG.L is trading at 1,267.50 pence, up 359.60 pence or 39.39% on a volume of 9.02 million shares.
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