6 Key Points of the Deal
Royal Dutch Shell is buying BG Group for about $70 billion in cash and stock
1. The big deal – the biggest in the energy world since Exxon Mobil bought XTOEnergy for $31 billion more than five years ago.
2. It’s sooner than expected – analysts were forecasting consolidation among the big energy companies due to falling energy prices, but not so soon after oil started its decline last summer.
It comes at a time when energy prices are tumbling, hurting energy companies including both Shell and BG. Crude Oil prices are at their lowest levels in six years, since the depth of the financial meltdown in 2009.
3. Shell gains – according to the deal Shell will create a company with 25% more proved oil and gas reserves than Shell alone now has. And it will add 20% to production and provides Shell with new, undeveloped oil and gas projects, particularly in Australia, Brazil, and East Africa.
4. The merger creates the world’s largest independent producer of LNG – Shell-BG will account for 16% of the world’s LNG (liquefied natural gas) market. The combined company can exploit rising demand for natural gas, a relatively plentiful and clean-burning fuel.
5. Other Majors are likely to look at M & A’s – the deal is likely to accelerate interest in energy mergers and acquisitions.
The biggest oil companies such as ExxonMobil, ChevronTexaco and BPAmoco, may also act or maybe they will hold back as they are already large enough to enjoy the advantages that Shell and BG create for themselves by marrying.
6. BG Shareholders Benefit – Shell offered a huge 50% premium over BG’s share price close of 13.57 on April 7th – the Benefit of the announcement to BG shareholders is that they would own approx. 19% of the merged company.
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