BG Group share price: Proxy adviser ISS backs Shell takeover

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 Jan 8, 2016
Updated: Mar 11, 2020

BG Group Plc (LON:BG) shares were well in the positive during midday trade in London today, following the release of a report by Institutional Shareholder Services (ISS), a key shareholder advisory firm, backing the proposed takeover by larger rival Shell.

ISS, which reportedly advises 35 of the top 50 shareholders in Shell, argued that the recent slump in oil prices does not take away from the “strategic opportunity of a transaction whose benefits will be realized over decades”.
“There is credible evidence… that the price Shell is paying is reasonable even considering the decline in oil prices and oil stocks since the deal was announced,” ISS said in a report released today. “Given the compelling strategic rationale, and the significant positive economics to be realized within a relatively short time frame, support for the transaction is warranted.”

ISS said that the combination would allow Shell to shore up oil and gas reserves, lower production costs and ensure dividend coverage “at what seems an opportunistic point” due to BG’s financial profile and the oil market’s cycle. The Anglo-Dutch oil major would be adding 25 percent to its proven resources, and gaining access to high-quality assets in Australia and Brazil.
Fred Ward, event-driven group managing director at Olivetree Financial, said that the vote of confidence from ISS is like “a top five shareholder publicly and vocally supporting the transaction”.
Investors latched onto the ISS recommendation, sending BG Group’s share price surging. Shares had gained 1.43 percent to 950.30p as of 14:11 GMT, which compares with two-to-three percent losses for BG’s energy peers. Significantly, BG’s share price is closing the gap to Shell’s offer, with the 950p per BG share standing just six percent below Shell’s 1,015p offer (at current prices). Since the deal was announced in April, BG shares have rarely narrowed the gap to Shell’s offer to within 10 percent.

”Shell is better off with BG assets than without them“

ISS’ backing would give Shell a key boost in its effort to reassure investors that approving the merger is the right move.
The company is in the process of drumming up investor support for the transaction, which Shell now claims would work with oil averaging $50 per barrel over the next two years.
To weather such an environment, Shell plans to cut capital spending further below the planned $35 billion for 2016, delay share buybacks and extend scrip dividends, where investors are offered discounted shares instead of cash, finance chief Simon Henry has told investors.
“It is unfortunate that the oil price has fallen since the deal was first agreed … But, significantly, Shell is better off with BG assets than without them,” James Maltin, investment director at Rathbones, a shareholder in both Shell and BG, said as quoted by the Financial Times. “The long-term oil price is probably higher than the current price and that is what you have to think about as a long-term investor.”
Shell and BG’s shareholders are set to vote on the merger on January 27 and 28, respectively, with Shell required to secure backing from 50 percent of its shareholders, while BG must win approval from 75 percent of its investors. The merger is likely to become effective February 15, Shell has said.
As of 14:33 GMT, Friday, 08 January, BG Group plc share price is 951.10p.

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