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Jim Armitage: Shell has too much to lose for this BG deal not to happen

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Screen Shot 2015-12-23 at 09.03.45“For Shell to have a reputation for reneging on such a significant handshake as this due to a short-term collapse in the oil price would be disastrous. For better or worse, this deal will happen.”

JIM ARMITAGE: Wed, 23 Dec 2015

Sleigh bells have been heard over BG and Shell as their shares staged a modest Santa Claus rally.

The jumps were a tentative suggestion Shell’s takeover of the former British Gas exploration arm will go ahead despite the doubters.

In case you’ve been in space with Major Tim, I should explain the deal’s critics say it makes no sense at current bombed-out oil prices.

Yesterday afternoon, Shell issued its offer documents including a welter of mathematical claims aimed at assuaging such fears.

Amid all the numbers, one stood out to me: £106 million. 

That is the amount of cash Bank of America Merrill Lynch, Goldman Sachs, Rothschild and other advisers on the deal stand to pocket. But only if it goes through.

They constitute a hugely powerful army of cheerleaders pushing Shell and its shareholders to press on regardless. Don’t underestimate their influence with directors and fund managers.

It’s not just in the Square Mile that Shell would lose face if it walked away.

Big oil companies thrive or die on their ability to do multi-billion dollar deals with governments. Deals that span decades and stick, whatever the economic weather. 

For Shell to have a reputation for reneging on such a significant handshake as this due to a short-term collapse in the oil price would be disastrous. For better or worse, this deal will happen.

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