At a time when the global oil price is trading at a 12-year low, Royal Dutch Shell plc (NYSE:RDS.A) expressed its own confidence in the industry by getting 80% of its shareholders to back its acquisition of BG Group PLC (OTCMKTS:BRGYY). Most of the votes were cast by proxy and other investors met in The Hague.
Victory for Ben Van Beurden
The winning percentage clearly showed that Shell’s CEO, Ben Van Beurden, was able to prevail over naysayers and convince shareholders of the expected gains from the acquisition. The vote came on the back of some analysts predicting the global oil price to continue to drop down to as low as $10 a barrel. Given such a background, it was undoubtedly a victory for Van Beurden.
Van Beurden said that the acquisition would lift cash flow in addition to improving dividend outlook. He also pointed out that BG Group’s growing production would lift its falling output. Now the deal needs approval from BG Group shareholders before being sent to court for approval, which is expected to happen in mid-February.
Largest LNG Trader
Shell’s acquisition would also turn the company into the largest liquefied natural gas trader in the world. The company has agreed to allocate 0.4454 of its B Shares, as well as a payment of 383 pence for every BG Group share in April last year. This meant offering a premium of 50% as the total transaction value was pegged around $70 billion at the time.
As oil prices started dropping in the last year, Shell’s valuation of the deal also dipped to $51 billion, reflecting its own share price. The company indicated that the slump might be a prolonged one thus suggesting that it would need a longer time than it initially thought to turn a profit on the acquisition. The oil firm said that at $50 per barrel it would be able to add to operating cash flows.