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Questor delivers a damning verdict of the proposed Shell BG merger

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An Opec meeting on December 5 could send oil price even lower and sound the ‘death knell’ for the deal.

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‘If oil prices remain at these deeply depressed levels, then it could bring nothing but disaster. The famous Shell dividend could be cut, investors will be diluted and the shares would become a riskier prospect,’ writes John Ficenec in the Sunday Telegraph

He argues that while the deal makes sense on paper – as it bolsters Shell’s prospects in the dash for gas – the success rests on one factor ‘price’. 

The price here is not right, says Questor, and there is a risk that Shell is overpaying at £47 billion. 

Shell will fund the deal with 30 per cent cash and 70 per cent new Shell shares – that means selling some $30 billion (£19 billion) of assets during the three years from 2016 and a £25 billion share buy-back from 2017 to reverse dilution effects. 

Since the deal was struck, oil and gas have fallen 20 per cent. Shell will now become more indebted and if the oil price fails to move, cash coming in won’t cover the dividend, letalone a buy-back. The merger only makes sense with oil above $80 a barrel, says Questor, but now prices are expected to stay lower for longer. 

Investors wanted Shell for conservative management and regular dividends, not exposure to gas. An Opec meeting on December 5 could send oil price even lower and sound the ‘death knell’ for the deal. Hold. 

Read more: http://www.thisismoney.co.uk/money/investing/article-3329336/Sunday-newspaper-share-tips-ScS-Eckoh-Shell.html#ixzz3sGDs1WSr

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