Javier Blas, Ruth David and Dinesh Nair London
It was a month of marriages for BG Group chairman Andrew Gould – for himself and his company.
While the 68-year-old Gould was getting married around Easter, he was finishing up selling BG to Royal Dutch Shell for $70 billion (R828bn) in a speedily arranged deal that is the biggest energy transaction in at least a decade.
On March 15, shortly after Shell’s board approved the merger idea, Shell chief executive Ben van Beurden called Gould to propose the deal. Just 24 days later, after Van Beurden and Gould met face-to-face in London, the deal was sealed after some haggling over price.
The speed may reflect the fact that Shell has looked closely at BG as a merger target on and off for several years. On at least two occasions Shell executives took the acquisition idea to their board, which declined to pursue it. This time, with oil prices slumping and Shell looking to boost its natural gas reserves, the merger made sense to the company.
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Shell’s bid for BG Group is proof that if you repeat a rumour long enough, it might eventually come true,” Neil Morton, an analyst at Investec Bank said.
Beefed up
Shell hired Bank of America’s Merrill Lynch as its adviser before the end of the year and beefed up its team with lawyers and other advisers in January. Negotiations also went quickly because Van Beurden and Gould handled most of the details.
But the biggest factor in greasing the talks may have been Shell’s offer, which ultimately represented a 50 percent premium for BG, the people said.
Investors were sceptical of the stock and cash acquisition, which is not expected to boost earnings per share until 2017.
The price of the class of share being used to buy BG fell the most since 2008 on concern the company is overpaying.
BG chief executive Helge Lund, 52, took over the company only in February and, while he was known for deal-making at his previous company, Statoil, he played a minor role in the Shell transaction, according to people familiar with the deal. He will leave the company once the merger is completed and will get about $43 million for a year’s work.
The merged company, led by Van Beurden, 56, will boast a market value twice the size of BP and surpass Chevron.
Shell, struggling to rebound from its worst production performance in 17 years, will swell its oil and natural gas reserves by 28 percent with the combination and inherit a management team that carved out a niche in liquefied natural gas (LNG).
BG was forged from the exploration arm of the UK’s former state-owned gas monopoly, British Gas, which was privatised by Margaret Thatcher in the 1980s.
The company was led for more than a decade by Frank Chapman, who built a global LNG business and drilled wells from Kazakhstan to Brazil. The company’s market value rose more than fivefold during his tenure, outperforming larger rivals including Shell and BP. Chapman retired at the end of 2012. – Bloomberg