Shell share price: Standard Life announce position against BG acquisition

By: Veselin Valchev
Veselin Valchev
Veselin is a data scientist with extensive experience in commodities and natural resources within the FTSE 100. His data analysis skills… read more.
on Jan 11, 2016
Updated: Mar 11, 2020

Standard Life, one of UK’s leading investment funds and a top shareholder in both Royal Dutch Shell Plc (LON:RDSA) and BG Group, has become the first major shareholder to openly oppose the proposed £34 billion takeover of fellow energy giant BG Group.

The investment fund, which holds 0.4 percent of Shell’s A shares and 1.7 percent of the B shares making it Shell’s 11th top shareholder, said on Friday that the risk of further oil price declines and risks connected to BG’s Brazilian assets, which are tied with embattled and indebted state-owned giant Petrobras, make the deal undesirable.
“We have concluded that the proposed terms of the acquisition of BG are value destructive for Shell shareholders,” said David Cumming, head of equities at Standard Life Investments. “This view is based on the downside risks to Shell’s oil price assumptions plus the tax and operational risks surrounding BG’s Brazilian asset base. Consequently we shall vote against the deal.”

Standard Life, which is also BG Group’s 16th largest shareholder with a 1.3 percent stake, has held meetings with Shell executives in a bid to convince management to renegotiate the terms.
Shell did not comment on Standard Life’s statement, but a spokesman said on Friday, following a call for the deal’s endorsement by an influential adviser, that the company believes it has “the broad base of shareholder support we need for the deal to complete”.

“Compelling strategic rationale”

Institutional Shareholder Services (ISS), a key shareholder advisory firm, said in a report released on Friday 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.”
Fellow proxy adviser Glass Lewis, which advises 12 of Shell’s top 50 shareholders, also advised investors to back the merger late on Friday, saying the deal “could lead to significantly improved financial results and the creation of substantial shareholder value”.
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.
Shell’s share price closed the first week of 2016 with a 10 percent loss, which compares with a 10 percent drop in oil prices and a five-percent fall for the FTSE 100. Shell closed 2015 some 30 percent in the red.
As of 07:41 GMT, Monday, 11 January, Royal Dutch Shell Plc ‘A’ share price is 1,375.00p.

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