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Investor halves BG Group stake as doubts grow over Shell deal

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By Ben Martin, and Ben Marlow, THE SUNDAY TELEGRAPH: 3 JAN 2016

One of the world’s largest investors has more than halved its stake in BG Group, sparking fresh speculation that some of the oil explorer’s top shareholders are sceptical about the prospects for its proposed tie-up with rival Royal Dutch Shell.

Capital Group, which is also one of the biggest investors in Shell, offloaded £417m of BG shares over the course of December, slashing its shareholding in the FTSE 100 giant from 2.2pc to 0.9pc, stock exchange filings show.

The American fund management firm continued to reduce its stake even after Shell published the prospectus for the blockbuster BG takeover on December 22, in which it sought to convince shareholders of the merits of the deal by outlining additional capital spending cuts.

The moves comes as a senior executive at one of the City’s biggest investment houses criticised the planned deal as “a classic case of a deal made using ‘other people’s money’”.

Shareholders in both companies are due to vote on the deal later this month and, like Capital, many of the major investors in Shell also hold stakes in BG. The on-going rout in the oil market has led some to question the logic of the tie-up.

Writing in The Sunday Telegraph, Ian McVeigh, head of governance at Jupiter Asset Management, described the vote “a major opportunity for…the largest (arguably most influential)…fund managers to send a powerful message to companies and particularly their advisers” that they are good stewards of investors’ money.

Speaking in a personal capacity and not on behalf of Jupiter, McVeigh said “it seems very hard to imagine that index funds will vote for this deal as so much of the premium that is being paid is going to the company where their holdings are far smaller.”

The oil market turmoil left BG vulnerable to an approach by Shell, with the price of a barrel of Brent crude plunging from its 2014 peak of $115 to about $55 in April, when the two companies revealed the deal.

However, instead of agreeing the tie-up at the bottom of the oil market, crude prices have continued to slump to trade below $37, causing concern that Shell is in danger of overpaying for BG.

Last month, David Cumming, head of equities at Standard Life Investments, which holds stakes in BG and Shell, signalled his opposition to the takeover by publicly warning it does not make “financial sense” with oil at current levels.

The stance taken by Capital, which also marginally increased its shareholding in Shell last month and did not return requests for comment, is unknown.

An investor in both companies that planned to oppose the deal, or was supportive but concerned there was a risk that others might attempt to block the takeover, would in theory cut its exposure to BG to protect against the plunge in its share price if the tie-up collapsed.

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