Interactive Investor

BG and Shell married after double 'yes' vote

28th January 2016 17:46

Lee Wild from interactive investor

It's official; Royal Dutch Shell and BG Group shareholders have backed a deal to create a £134 billion oil leviathan, twice the size of London rival BP.

A day after Shell's general meeting at The Hague in the Netherlands gave it the nod - by a larger-than-expected 83% - BG investors owning over 2 billion shares, or 99.53% of the company, voted 'yes' to the $50 billion (£35 billion) takeover, first flagged in April last year.

"I am delighted with the positive shareholder vote and the confidence that shareholders have shown in the strategic logic of the combination of Shell and BG," says Shell chief Ben van Beurden.

Of course, BG shareholders were never going to kibosh this deal. It would be like turkeys voting for Christmas. They'll get 383p in cash and 0.4454 Shell B shares for every BG share they own, plus the dividend declared by Shell for its fourth quarter, expected to be 47 US cents per share. BG will not pay a final dividend.

Currently, with Shell trading at 1,497p, that values each BG share at 1,050p. And there are very good reasons why BG owners would want a stake in Shell. The oil major has promised to keep paying an annual dividend worth $1.88 (131p), giving a prospective yield of 8.7%, and the enlarged business will be able to raise billions of pounds in asset sales - $30 billion of assets are earmarked for sale in 2016-2018 on top of the $20 billion of disposals already made.

"The deal gives Shell scale, with Brazil, the Queensland Curtis liquefied natural gas project and the LNG business being ultimately bigger and at a much lower cost," says industry expert and Interactive Investor contributor Malcolm Graham-Wood.

"The combined beast will be a lean, mean, but scaled super-major, unrecognisable from even the recent past. All this and nearly a 10% yield into the bargain makes me think that there is a price for everything."

Now that the deal has been approved, court sanctioning of the tie-up is expected on 11 February, with last day of trading for BG shares on Friday 12 February. Trading in the merged Shell/BG will be on 15 February.

Shell publishes fourth-quarter and full-year results on 4 February, followed by BG a day later.

Maiden results for the enlarged Shell's first quarter are due on 28 April. Shareholders will then be given a formal update on the firm's vision, plans and forward guidance on 7 June.

Deutsche Bank reminds us: "Shell has indicated 2016 enlarged group capital expenditure of c$33 billion and synergies from the deal of $3.5 billion, of which $1.5 billion reflects the removal of exploration costs.

"Separately, Shell has indicated it expects to remove $3 billion of costs in 2016 from its own business after $4 billion of savings in 2015."

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.