Bloomberg
Royal Dutch Shell is on the brink of pulling off its biggest acquisition. Yet the widening discount of target BG Group to the offer price shows that a further steep drop in oil prices could still put the deal in doubt.
BG traded 12.5% below Shell’s bid price on Dec. 18, the biggest discount since early September, compared with a 6.4% gap on Dec. 4. While BG shares soared when news of the deal broke eight months ago, they’ve since tumbled more than 20% as oil prices slumped.
If benchmark Brent crude sinks to the mid-$20s/bbl, the transaction may fall through, said Philip Lawlor, a strategist at Smith & Williamson Investment Management LLP in London, which owns shares in both Shell and BG. Trz Trading BV’s Niels Lammerts Van Bueren said it “all depends on the oil price.”
Most money managers expect the deal to proceed with oil at current levels. Brent is trading at about $36.14/bbl in London, having lost two-thirds of its value since June 2014 amid a global supply glut. Shell in April offered to pay 0.4454 of its B shares and 383 pence in cash for each BG share in a deal valued at $70 billion. A decline in Shell’s stock has cut that to about $53 billion, according to data compiled by Bloomberg.
Price Risk
There are “high risks” that oil may fall further, Goldman Sachs Group said Dec. 17, while Citigroup said US crude may fall into the $20s if storage tanks start to fill up before producers curb output sufficiently.
Shell last week won Chinese antitrust approval to buy BG, completing the fifth and final precondition to the deal.
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