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Shell shareholders vote for BG Group takeover despite opposition

January 28, 2016

Shell has won shareholder approval for its £35bn takeover of BG Group despite nearly a fifth of investors opposing the deal.

At a specially convened general meeting in The Hague on Wednesday, 83% of Shell shareholders voted for the acquisition, despite claims that the Anglo Dutch group was paying too much for its rival during a period of collapsing oil prices and should be investing instead in renewable energy.

Ben van Beurden, the Shell chief executive, expressed relief he had won the day, although for the merger to be consummated, he must also secure the support of BG investors at a separate meeting in London on Thursday.

“I am delighted with the positive shareholder vote and the confidence that shareholders have shown in the strategic logic of the combination of Shell and BG,” he said.

Van Beurden and Shell are struggling because the company has already warned it is heading for a 50% reduction in fourth-quarter profits and £5bn worth of asset writedowns because of low commodity prices.

Management expressed confidence that the price of oil would eventually bounce back, but Simon Henry, chief financial officer, admitted Shell – even without a merger – would face challenges if crude remained at $40 to $50 per barrel over a long period.

The price of oil has been at 12-year lows, although it has lifted off these levels to around $31. It has been badly affected by the oversupply from US shale producers, an unwillingness of Opec members to cut production and, most recently, Iran’s re-entry into the oil supply market after the lifting of sanctions. At the same time, demand for oil is lower than expected because of a faster-than anticipated economic slowdown in China and elsewhere.

Few at the meeting spoke out against the tie-up, but the 17% who did not vote in favour represents a sizeable rebellion. Standard Life had earlier said the merger was “value destructive”.

On the day, some opposition came from shareholders who thought it was time for Shell to change strategic direction and work harder for the low-carbon world envisaged by negotiators at the recent climate change talks in Paris.

“We have voted against this deal because we think there is a much better way to spend billions: in renewable energy,” said Mark van Baal, founder of Follow This, a group of Shell investors supporting green energy.

Shell shares rose slightly to 1,401p on the day, but they remain almost 40% lower than where they were 12 months ago. Despite this, there was a note from analysts at investment bank Barclays Capital recommending buying the shares.

“Shell is clearly not exempt from the squeeze in earnings and cashflow faced by the industry, but with the acquired assets it is likely to have more levers than most to pull through the downturn. We continue to see the investment case for Royal Dutch Shell as compelling,” said Barclays.

But there will be nervousness in Aberdeen, the British offshore oil capital, because more jobs could be on the line. Shell has already promised to sell off $30bn (£21bn) worth of assets and cut 10,000 more jobs once the BG merger is complete.

The UK North Sea is particularly vulnerable because it is a high-cost area from which to produce oil. Shell last year unveiled plans to reduce the headcount of its workforce by 6,500 worldwide.

The cash and shares deal agreed between the boards of the two companies involves a 50% premium to the price of BG at the time. The deal was first unveiled last April, when the price of oil was $55 per barrel.

Shell believes that BG offers it access to significant new oil markets such as deep-water fields in Brazil, and more exposure to Australia’s growing gas reserves.

BG was once part of state-owned British Gas, but has grown to become a substantial international exploration and production company. There has been particular concern in the City that the Shell dividend, an important income generator for many pension fund investors, could in future be slashed but the company insists that it is safe.

By Terry Macalister

Source: The Guardian

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