Standard Life, a top shareholder in both Royal Dutch Shell Plc (LON:RDSA) and BG Group, will support the deal via its holding in BG, sources close to the company revealed yesterday, after last week the UK fund said it would vote against the deal with its Shell shares.
Calling the deal “value destructive for Shell shareholders”, Standard Life announced on Friday that it will vote against, and revealed that it had tried to persuade the Shell board to renegotiate the deal.
However, sources close to the fund have said that failure of deal’s conclusion is seen as too great of a risk for BG’s share price, Sky News reported yesterday.
“It is an unusual situation but it is logical for them to take this dual position,” a City source said as quoted by Sky.
The peculiar divergence comes as Shell drums up support for the £34 billion acquisition amongst its shareholders. The oil major has said that the deal would be cash generative even with oil at $50 per barrel for the coming two years, which is a lot less demanding that previous estimates, but reportedly there are still concerns amongst shareholders that Shell is overpaying for its smaller rival.
A Shell spokesman said on Friday that the company believes it has “the broad base of shareholder support we need for the deal to complete”.
BG shareholders are expected to back the deal with an overwhelming majority.
Shell shareholders vote on the deal on January 27, while BG will vote the following day. At least 50 percent of Shell’s shareholders and 75 percent of BG’s must vote “yes” for the deal to go through. The merger is likely to become effective February 15, Shell has said.
“Shell will have better reserves to develop”
Analysts have said that the deal may be cash negative in the short term, but noted that it gives Shell access to a high-quality reserves portfolio which would cut exploration costs in the coming years.
“Shell with BG is better than Shell alone because of the quality of assets it is buying,” Ahmed Ben Salem, oil and gas analyst at Oddo & Cie in Paris, said as quoted by Bloomberg. “It sets Shell up for a few years because they will have better reserves to develop instead of spending on expensive exploration.”
Similarly, Brendan Warn of Bank of Montreal argued that although the oil slump “makes it look like [Shell] has overpaid for the assets … [the merger] is the right thing for the company long-term”.
“It allows the company to get access to high-margin barrels in Brazil and better access to Australian LNG,” Warn said.
In a major win for the “yes” camp, Institutional Shareholder Services and Glass Lewis, two of the most influential proxy advisers, have advised shareholders to back the deal, “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, while Glass Lewis noted that the deal “could lead to significantly improved financial results and the creation of substantial shareholder value”.
Shell’s share price closed Monday’s session with a 1.54 percent loss at 1,354.00p. The Anglo-Dutch oil major dropped some 10 percent last week.
As of 08:12 GMT, Tuesday, 12 January, Royal Dutch Shell Plc ‘A’ share price is 1,354.00p.