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Royal Dutch Shell – BG Group Merger: Investors Remain Divided

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By Muhammad Ali Khawar on Jan 22, 2016 at 8:14 am ESt

A few days before the shareholders’ meetings on January 27 and January 28, the proposed merger of Royal Dutch Shell plc (ADR) (NYSE:RDS.A) and BG Group has received major support from one of the biggest shareholders of Shell. According to Reuters, Norges Bank Investment Management said it will vote in favor of the proposed merger.

The $790 billion Norwegian fund is the fifth largest investor of European giant, Shell. It believes, amidst low oil prices, the deal will make both the energy companies stronger. The transaction will also be positive for the long-term interests of the companies’ shareholders, the bank added.

Shareholders of Shell and BG Group plc (ADR) (OTCMKTS:BRGYY) remain divided on whether to approve or reject the multi-billion dollar transaction. Earlier this month, the deal received support from Institutional Shareholder Services (ISS). The shareholder advisory group advises 35 of the total 50 top investors, and according to the Financial Times, 3%-5% of the investors blindly follow the group’s recommendation. ISS is of the opinion that the deal would be accretive to the combined company’s 2018 earnings, and oil and gas reserves.

On the other side, another key investor, Standard Life Investments, rejected the deal last week. The investment firm holds 1.3% stake in England-based BG group, and 2.1% in Shell. It believes the merger would be “destructive” for the Hague-based oil major.

Though different investors have different opinions about the $70 billion deal, the management of Shell and BG Group are trying hard to convince them. Shell said that the deal will positively affect its oil production and strengthen its foothold in liquefied natural gas (LNG) and Brazilian markets. The Anglo-Dutch company expects more than $3.5 billion in synergies from the merger. The completion of the merger requires majority votes from Shell shareholders and 75% votes from BG Group shareholders.

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