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Energy sector could see more mega-mergers after Shell's bid for BG

Xinhua, April 8, 2015 Adjust font size:

Shell's 47-billion-pound bid for BG Group could be the beginning of a new wave of mega-mergers in the sector, said Christian Stadler of Warwick Business School on Wednesday.

Royal Dutch Shell announced on Wednesday it has reached a deal to buy British oil and gas exploration company BG Group valued at 47 billion pounds (around 70 billion U.S. dollars).

BG shareholders will receive 3.83 pounds per share in cash, plus 0.4454 Shell B shares, equivalent to 13.5 pounds per BG share based on 90-day trading volumes on 7 April 2015, the two companies said in a statement.

If the deal was to proceed it would create a company with a combined value of almost 180 billion pounds, overtaking HSBC to become the biggest on the FTSE 100.

"Just as in the late 1990s the oil price has plummeted, though then it reached 10 U.S. dollars a barrel. Now it is at around 50 US dollars and with cost pressures acquisitions are an obvious way to maintain growth," said Christian, the Associate Professor of Strategic Management of of Warwick Business School.

Christian said BG would fit well with Shell's portfolio, as Shell has a very good track record in offshore oil and gas fields, and BG will help them solidify this area.

But he warned of potential job loss for the new company, as the cost savings are much harder to achieve.

BG reported a loss of 5.3 billion pounds (7.9 billion U.S. dollars) for the fourth quarter of 2014, after being forced to write off 8.9 billion U.S. dollars in impairments as a result of the global oil price slump of the past nine months.

BG Group is the third largest energy company in Britain. It was created in 1997 when British Gas demerged into two separate companies: BG Group and Centrica.

BG Group took control of exploration and production while Centrica took charge of the retail business of the former British Gas. BG currently employs about 5,200 people in 24 countries and regions. Endit