Shell share price: Aussie regulator approves BG merger

By: Veselin Valchev
Veselin Valchev
Veselin is a data scientist with extensive experience in commodities and natural resources within the FTSE 100. His data… read more.
on Nov 19, 2015
Updated: Mar 11, 2020

Royal Dutch Shell Plc (LON:RDSA) has received unconditional approval from the Australian Competition and Consumer Commission (ACCC) for the proposed takeover of fellow British energy giant BG Group, the two companies announced today.

“The ACCC’s view is that the proposed acquisition would be unlikely to substantially lessen competition in the wholesale natural gas market, in either Queensland or eastern Australia more broadly,” commission chairman Rod Sims said in a statement following the approval.
The nod comes with a sigh of relief from Shell, after the ACCC delayed its decision by more than two months to assess the domestic competition and supply implications of the tie-up. The authority was concerned that aligning the interests of Shell’s Arrow Energy joint-venture and BG’s export-oriented LNG business in Queensland would hurt competition and domestic supply.
Arrow was not currently supplying domestic customers and appeared unlikely to do so in the future, Sims noted, adding that imposing conditions on the deal would have been “extremely difficult”.
The approval from the ACCC is one of five regulatory clearances required for the deal to go through. It is the third application to satisfied, following approvals from Brazil and the EU.
“The addition of BG’s integrated gas assets in Australia to Shell’s global portfolio is one of the main strategic drivers behind the recommended combination, making ACCC approval a major step forward for the deal,” Shell boss Ben van Beurden said.
“The Shell BG combination is a sign of Shell’s confidence in the Australian economy. It’s also a springboard to change Shell into a simpler, more profitable and resilient company in a world where oil prices could remain low for some time.”
The merger now needs approval from Australia’s Foreign Investment Review Board and China’s Ministry of Commerce.
Shell noted that the filing process “continues to progress well” in China, where analysts have predicted major regulatory hurdles. The merger remains on track for completion in early 2016, the Anglo-Dutch oil major said.
The £39 billion deal, the largest industry tie-up in more than a decade, must also receive backing from the two companies’ shareholders, and analysts have suggested that some investors are not too keen to support the tie-up.
Earlier this week, Qatar Investment Authority, the Gulf state’s sovereign wealth fund, was revealed to have divested $1 billion worth of shares in Shell and BG, fuelling speculation that the deal might fall through.
Ever since the merger was proposed in April, BG’s share price has consistently remained at least 10 percent below Shell’s offer, underscoring investor worries.
Last week, Ian McVeigh, head of governance at Jupiter Fund Management, said that Shell’s bid for BG resembles the disastrous purchase of ABN Amro by Royal Bank of Scotland in 2007.
“Hugely expensive moves whose main purpose is to rebalance portfolios have a grim history,” McVeigh pointed out. “This deal is not big enough to do to Shell what ABN did to RBS, but I think it is still highly material.”
Shell has actively been communicating to investors that it believes the BG tie-up to be still ‘compelling’, despite an increasingly bearish outlook for oil.
“The benefits (of the acquisition) come from delivery of growth projects which will deliver cash flows not over 6 months or 12 months, but over 15-20 years, that’s the real value,” Shell chief financial officer Simon Henry said earlier this month.
Shell’s share price closed Wednesday’s session with a 1.36 percent gain at 1,640.00p. Since the BG offer was announced in early April, Shell’s stock has depreciated more than 20 percent. Over the same period, BG shares have dropped about 12 percent.
As of 07:47 GMT, Thursday, 19 November, Royal Dutch Shell Plc ‘A’ share price is 1,640.00p.

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