Shares in BG Group rocketed 35% to 1229p today following the announcment that BG shareholders are set to receive 383p in cash plus 0.4454 ‘B shares’ in Shell for each share held.
The gas company’s top ten shareholder list contains names very familiar to UK investors including BlackRock which owns 4.03%, Fidelity Worldwide Investment which owns 1.67% and Legal & General Investment Management which has 2.92%.
Other major holders include Norges Bank Investment Management with 5.05%, Wellington Management Co with 2.1% and Northern Cross with 1.58%.
Fidelity has been particularly quick to welcome the deal. Michael Clark, portfolio manager of the Fidelity MoneyBuilder Dividend Fund, holds stakes in both companies.
“It’s a good deal for BG shareholders, clearly, but also good for shareholders in Royal Dutch Shell.” he said.
Clark explained that he believes the deal has come about for two main reasons. “First, although BG had some first class assets, it has struggled to develop them as smoothly as hoped in recent years. Shell has a wider pool of expertise and substantially greater access to investment capital.” he said,
“Second, this gives Shell a presence in the productive zone off the coast of Brazil, and will ensure that Shell’s own production is maintained over the medium term, taking away the requirement to make large discoveries to offset natural depletion.”
Clark added he sees ‘no danger’ that Shell will change its dividend policy as a result of the deal.
According to Pascal Menges, manager of the Lombard Odier Global Energy Fund, the deal is symptomatic of fundamental change in the energy industry and more upheaval is likely to follow.
“This shows that big oil’s growth strategy over the last ten years is bust,” he said. “Having bet enormous sums on eye-wateringly expensive oil production from oil sands, ultra-deep water and arctic fields the super-majors are now ill-placed to cope with a low oil price. Shell’s purchase of BG Group heralds a scrabble by big oil to ‘high grade’ – improve the overall quality – of their portfolio.”
While other oil majors would like to take the same route in Menges’ view, only Exxon has the flexibility to do ‘big ticket deals’ with the other players like Total, ENI and Statoil having to content themselves with smaller transactions from the ‘pick ‘n mix counter.’
Ian Forrest, investment research analyst at The Share Centre sees the deal as good news for all BG shareholders, not just the big name fund firms.
“The deal looks attractive for investors, especially those seeking a higher level of income,” he said. “It offers a mixture of cash and shares which value each BG share at £13.67, based on yesterday’s closing price. This makes for a premium of 50%, a level not seen for over a year.”
