Shell’s BG deal gets backing of shareholder advisory firm

By RAKTEEM KATAKEY on 1/8/2016

LONDON (Bloomberg) -- Royal Dutch Shell Plc has won the backing for its takeover of BG Group Plc from a body that advises many of its largest shareholders.

Shell’s biggest ever deal has “compelling strategic rationale” and “significant positive economics to be realized within a relatively short time frame,” Institutional Shareholder Services said in a report dated Thursday. “Support for this transaction is warranted.”

Shell is on the brink of pulling off its biggest acquisition, but oil’s collapse to less than $35/bbl from about $55 on the day the deal was announced in April has prompted some investors to question whether the company is paying too much. The energy producer has justified the deal by saying it would boost its ability to maintain dividends, make it the world’s largest LNG producer and give it new assets from Australia to Brazil.

Thirty five of the top 50 shareholders in Shell subscribe to Institutional Shareholder Services, so a positive recommendation is akin “in our minds, to a top five shareholder publicly and vocally supporting the transaction,” Fred Ward, event-driven group managing director at Olivetree Financial Ltd., said in a report. Between 3% and 5% of Shell’s shareholder register “effectively blindly follows the recommendation of ISS,” he said.

The takeover of BG, worth $70 billion when it was announced in April, will increase Shell’s proven oil and gas reserves by 25% and production by 20%. The deal will result in $3.5 billion in operating cost savings from synergies in operations and will be strongly accretive to earnings per share by 2018, the ISS report said.

The transaction remains on track for completion early this year, CEO Ben van Beurden said in an interview published on Shell’s website. Shell’s shareholders are scheduled to vote on the deal on Jan. 27, with BG following the next day. Shell requires the backing of 50% of its holders. In BG’s case, votes in favor must represent at least 75% of the total value of the company’s shares.

BG’s shares rose as much as 3.3% and traded 3% higher at 965.20 pence as of 8:36 a.m. in London. The stock’s discount to Shell’s offer price narrowed to 5.9% on Friday compared with 9.5% Thursday.

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