According to a statement by BG Group, Royal Dutch Shell is considering a “super-merger” with BG to expand its gas production, which would mark the biggest merger of the year.
The $70 billion merger would put Shell in a dominating position over the oil market. It would nearly close the gap with Exxon, the world’s biggest oil company, worth $360 billion. The new combined group Shell-BG would be worth $334.5 billion, around 9% of the FTSE 100. The deal would also give Shell access to BG’s multi-billion dollar projects in Australia, Brazil, China, East Africa, Egypt and Kazakhstan. Finally, the new group would become the world’s largest producer of liquefied natural gas (LNG) with BG’s assets. Shell even stated that it would have twice the size of LNG production of Exxon by 2018.
The potential Shell-BG merger is the latest evidence of the consequences of last year’s oil price drop. Several companies, such as BG, were hit so badly that they were pushed to consolidation deals to survive. This was to be expected considering the scope of the oil crisis.
The $70 billion offer from Shell to BG would be paid in cash and shares, which includes a tremendous merger premium of 50%. If the deal is completed – expected in early 2016 – BG’s shareholders will hold 19% of the newly merged company.
To conduct this supersized deal, Shell is relying on a consummate legal team: Slaughter and May primarily, Cravath, Swaine & Moore for U.S. legal issues, De Brauw Blackstone Westbroek for the Dutch aspects, and Shell’s own team of in-house lawyers, lead by its legal director Donny Ching. BG chose Freshfields as principal counsel in the merger.
Before completion of the deal, a couple of major legal procedures will have to be thoroughly followed. Considering the great size of the purported new group, this deal requires the prior approval of some antitrust authorities: Australia, Brazil, China, and E.U. Shareholders of both companies will have to approve the deal as well.
This merger might spur other consolidation projects in the oil industry. Lately, rumor has it that Exxon Mobil is contemplating BP as a potential acquisition.