As BG Group agrees a £47bn takeover by Shell, is this a good deal for shareholders?
Iain Armstrong is an equity analyst at Brewin Dolphin, says Yes
This is a good deal for Royal Dutch Shell shareholders. First, BG Group has an excellent portfolio of both producing and exploration assets. Second, the fit between the two companies is very strong. Third, this is a relatively low-risk proposition for Shell, given that the Queensland Curtis LNG project for BG has now started. The remaining large projects are either close to or already past the final investment decision stage. Fourth, there are significant opportunities to cut capital spending in the combined group and improve the overall exploration track record of Shell because of the superior reserve replacement ratio record of BG. Finally, Shell is buying a “ready-made” company, with nearly 700,000 barrels per day of production. The £47bn price tag looks a bit scary. But when you consider how much it has already spent on Arctic exploration and the £24bn of planned capital expenditure in 2015, it doesn’t seem like such a bad price after all.
Augustin Eden is a research analyst at Accendo Markets, says No
Royal Dutch Shell is suffering. That’s understandable – the company is shelling out £47bn for BG Group, so it’s going to be feeling a little light in the pocket. Indeed, the words “what the hell are you doing?!” are likely being muttered by shareholders – shareholders who are evidently showing their frustrations by selling their shares. In BG, Shell has got itself a competent practitioner in the fields of natural gas and deep water operations, with valuable proven resources off the coast of Brazil (as opposed to West Africa or Kurdistan), but boy have they paid for it. And where is oil today? Down, that’s where. With no real evidence that the oil price has bounced decisively and capital expenditure cuts all over the sector, this is a bold move requiring considerable faith. We should applaud Shell for “thinking outside the barrel,” but it should have saved the cash for the rainy day that may have yet to arrive.