Shell-BG megadeal could push others in oil patch to rethink growth, M&A wave coming says The Edge
Apr 9, 2015
By Shawn McCarthy and Jeffrey Jones, Staff Writers, The Globe and Mail: “We believe this [deal] proves an M&A wave is with us through 2016, which will be bigger than ever,” said Ryan Mendy, chief operating officer at Britain-based Edge Consulting Group, an independent consulting firm. It will force other companies “to focus on their own potential strategies. The remaining companies are now forced to either push to survive alone, spin off a segment to streamline and unlock value for investors, or find a partner like Shell-BG to attract new opportunities.”
Royal Dutch Shell PLC’s megadeal for Britain’s BG Group PLC is forcing rival oil companies to re-evaluate their growth strategies and look for value in depressed equity prices as crude prices languish near multiyear lows. Shell announced Tuesday that it will spend £47.7-billion ($87.7-billion) in cash and shares to acquire BG, which is focused on natural gas production, liquefaction and transportation with operations around the world, including a partnering in a proposed LNG plant in British Columbia.
The two companies have little overlap in Canada, although the merger faces regulatory scrutiny in Europe and elsewhere where they compete in natural gas markets. The proposed deal would be the third-largest oil and gas merger in history, behind Exxon Corp.’s acquisition of Mobil Corp. in 1998 and the 2004 marriage between Royal Dutch Petroleum and Shell Transport and Trading that created the current Anglo-Dutch supermajor. It also ends a relative dry spell for blockbuster oil-industry mergers and acquisitions.
Mr. Mendy said the push for acquisitions is being driven by the vast market of underpriced assets available, excellent access to cheap capital provided by global investment banks to the right buyers, and senior management’s desire to achieve growth in a low-price environment. Mr. Mendy pointed to companies such as Italy’s Eni SpA, France’s Total SA, and Britain’s BP PLC as likely merger partners or targets for acquisition.