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Biggest Oil Deal’s Risk Narrows to Record as Shell Pushes Ahead

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By Rakteem Katakey: 30 November 2015

  • BG’s shares are at smallest discount to Shell’s offer price

  • Takeover received Australia antitrust approval this month

BG Group Plc’s discount to Royal Dutch Shell Plc’s takeover offer is the narrowest since the transaction was announced in April as the likelihood increases that the biggest oil deal of the decade will go through.

BG shares were 7.8 percent lower Monday than the price implied by Shell’s offer to buy the company, about half the discount reached in August. Shell has received approvals for three of the five preconditions to the acquisition, including one this month from Australia’s antitrust authority, meaning the window for some investors to cash in on the discount is starting to close, according to William Hares, a London-based oil analyst with Bloomberg Intelligence. 

“There is less risk for non-completion as time progresses,” Hares said. “The spread has more than halved over the last 2 months, suggesting a narrowing window of opportunity for arbitrage-focused investors.”

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Shell’s biggest acquisition has gone through highs and lows as crude prices slumped below $45 a barrel from near $60 when it was announced. The discount of BG’s shares to the offer price was as much as 12 percent earlier this month as some investors asked if Shell was paying too much. The company’s Chief Executive Officer Ben Van Beurden has defended the deal, saying the assets it gets from Australia to Brazil will bring long-term benefit, help cut costs and add to cash flow at any oil price.

BG shares traded at 1,042.50 pence Monday, 7.8 percent below the price implied by Shell’s offer, meaning an investor who purchases BG’s shares now can still make a gain if the deal is completed. The discount had surged to over 15 percent on Aug. 26. Shell in April offered to pay 0.4454 of its B shares and 383 pence in cash for each BG share, implying an offer price of 1,131.27 pence.

Shell expects the deal to close early next year, the company said Oct. 30, when it announced an additional $1 billion of savings in operating costs from buying BG. The Australian Competition and Consumer Commission approved the acquisition on Nov. 19 despite concerns it could reduce natural-gas supply to local customers and boost prices. The takeover, which has already won regulatory approvals from the U.S., the European Union and Brazil, still requires clearance from China’s antitrust regulators.

The outlook for the acquisition got a boost in October after BG raised its oil and natural gas production forecast for this year to between 680,000 and 700,000 barrels of oil equivalent a day. In July, it had forecast production to be at the upper end of a 650,000 to 690,000 range.

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