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BG Group shares are going through the roof after a colossal merger with Shell

Screen Shot 2015-04-08 at 08.12.04Article by MIKE BIRD published 8 April 2015 by UKBusinessInsider.com

BG Group shares are going through the roof after a colossal merger with Shell

Shares in BG Group are rocketing upwards after the company agreed to a merger with oil giant Shell. The tie-up will create a company worth £224 billion.

As of 10:20 a.m. London time (5:20 a.m. ET) London-listed BG Group’s shares are up 36.95%, climbing to levels last seen in the summer, before falling oil prices took their toll.

Here’s how it looks:

Screen Shot 2015-04-08 at 10.30.42

The share price climbed about 6% yesterday too, and the company’s shares surged from about 852 pence just before Easter to nearly 1,250 pence now.

The deal values BG Group at £47 billion ($70.05 billion), the equivalent of about 1,367 pence per share. 

It’s all about low oil prices, which are transforming the sector — this deal would have looked hilariously bad for BG Group just 12 or 18 months ago. Here’s Marc Kimsey, senior trader at Accendo Markets in a note emailed out Wednesday morning:

The deal between Royal Dutch Shell and BG Group will prompt sector consolidation. The decline in oil price over the past year has battered some stocks which are clearly now looking attractive. In the last year BG shares fell 30%, shares in Tullow Oil have fallen 65%, Premier Oil down 55%, and Petrofac down 20%. By comparison sector behemoths BP and Royal Dutch Shell have only shed 10% over the same period leaving them in the position of predator rather than prey.

Despite the fact that this merger has been discussed as a potential move for decades, investors aren’t taking the news as such a positive thing for Shell — London-listed B shares are down by 5.07%.

Screen Shot 2015-04-08 at 10.32.09

Here’s UBS on what the merger means for Shell:

We had identified this period of low oil prices as potentially one of those periods when the Majors try to be opportunistic. There has been a view they would need to go big or not at all. We would see this as a deal proposed by Shell out of necessity not strength however. We believe there is a risk that Shell’s portfolio is being marginalised in the current environment.

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