Shell has agreed to buy BG Group for £47 billion, in what is the first oil super merger in a decade. Kirsty Basset looks at why the M&A route is an attractive option.
It's the biggest merger so far this year, and the biggest super merger in the oil industry in more than a decade. Shell has agreed to buy BG Group for £47 billion. It comes after the price of oil has halved since last June. Reuters European energy editor Dmitry Zhdannikov. (SOUNDBITE)(ENGLISH) REUTERS EMEA ENERGY EDITOR, DMITRY ZHDANNIKOV SAYING: "It's a very big deal. We haven't seen anything like that since probably early 2000 when most of the existing super majors have basically appeared. When Exxon bought Mobil, when Chevron bought Texaco, when BP bought Amoco and Arco." Shell will pay a mix of cash and shares, putting a value on BG shares at around £13.50, offering a premium of around 50 per cent, and setting the bar high for any potential rival bidders. Shell says the deal will boost its oil and gas reserves by 25 per cent. But it may also be interested in other assets BG holds. (SOUNDBITE)(ENGLISH) REUTERS JOURNALIST DMITRY ZHDANNIKOV SAYING: "What's very interesting about this deal is that BG is not really an oil firm. BG is a gas producer, so clearly Shell is making a bet on a cleaner fuel. They're making a bet that gas will become an increasingly important fuel in the future, rather than oil." There's been a flurry of global M&A activity in the first quarter of this year, totalling more than $850 billion. Senior Economist at Schroders, Azad Zangana, says the low interest rate environment is one of the reasons companies are looking to leverage up. (SOUNDBITE)(ENGLISH) AZAD ZANGANA,SENIOR EUROPEAN ECONOMIST AND STRATEGIST AT SCHRODERS SAYING: "And at the same time we've had lower demand across the global economy, leaving room for consolidation. Companies are looking at their own markets and deciding that there's very little need to invest in their own capacity. So instead they're using what cash they have to buy out their competitors and that, with the rationalisation in those markets, they can find efficiencies and drive their earnings forward." BG shareholders will end up owning around 19 per cent of the combined group, and saw their shares leap a healthy 37 per cent on the news.