Royal Dutch Shell share price down, to acquire BG Group for $70 billion

Oil major Royal Dutch Shell announced on Wednesday it has agreed to acquire BG Group for £47 billion in a bid to close the gap on main US rival ExxonMobil and reaffirm its dominance of the global trade in natural gas.

In a joint statement, the two companies announced their Boards have reached an agreement on the terms of a cash and share offer made by Shell for the entire capital of BG. Under the terms of the recommended deal, each BG shareholder will receive 383 pence in cash and 0.4454 Shell B shares per BG share, valuing BGs shares at around 1 350 pence based on 90-day trading volumes. This is a premium of approximately 52% to their 90-day trading average.

Based on Shells closing price on April 7th, BGs capital is valued at £47.0 billion.

The deal will result in BG shareholders owning 19% of the combined group and is expected by Shell to generate annual pre-tax synergies of $2.5 billion, in addition to further significant opportunities.

“This is an important transaction for Shell, accelerating the delivery of our strategy for shareholders,” said Jorma Ollila, Chairman of Shell. “The result will be a more competitive, stronger company for both sets of shareholders in today’s volatile oil price world.”

The purchase will provide Anglo-Dutch Shell with access to significant oil and gas reserves and spare it expensive exploration costs. The oil major expects the takeover to increase its proved oil and gas reserves by some 25% and add 20% to production, while improving the companys positions in competitive new oil and gas projects. Shell will gain a foothold in the so-called pre-salt area offshore Brazil, as well as a big position in unconventional gas in Australia. BG began operating a $20-billion LNG facility at the start of the year after a series of delays.

“BG shareholders will receive significant value through the premium being offered for their shares,” Mr.Ollila said. “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.”

Shell confirmed its intention to pay dividends of $1.88 per ordinary share in 2015 and at least the same amount in 2016. Meanwhile, BG shareholders will continue to be entitled to receive their final dividend for 2014 of 9.52 pence per share, which has already been announced, as well as an interim dividend for the six-month period ending June 30th 2015 of not more than the interim dividend for the six months ended June 30th 2014.

Shell also announced it plans to launch a share buyback program of at least $25 billion in 2017 through 2020, which should significantly reduce the equity issued in connection with the BG takeover, and said it plans to increase asset sales to a total $30 billion for the period between 2016 and 2018.

Helge Lund, CEO of BG, commented on the deal: “The offer from Shell delivers attractive returns to shareholders and has strong strategic logic. BG’s deep water positions and strengths in exploration, liquefaction and LNG shipping and marketing will combine well with Shell’s scale, development expertise and financial strength. The consolidated business will be strongly placed to develop the growth projects in BG’s portfolio.”

Royal Dutch Shell B shares were down 5.84% at 2 079.5 pence at 08:08 GMT in London, marking a one-year change of -11.45%.

Meanwhile, BG Group PLC soared 37.41% to 1 251 pence per share, registering a one-year jump of 10.86%. The company is valued at 31.24 billion pounds based on the previous close.