Shell-BG Just The First In Series Of M&A Deals

Shell-BG Merger is Just the First in a Series of M&A Deals

Back in February, I predicted that the current crisis in oil prices would cause consolidation in the industry, with smaller companies being consumed by the energy majors.

After all, these energy giants are the only ones with deep enough pockets, valuable shares, and access to capital.

Sure enough, last week, Royal Dutch Shell (RDS-A) announced its plans to buy BG Energy (BRGYY).

But that’s just the beginning…

Shell’s move is the first shot fired in what’s sure to be an all-out merger and acquisition (M&A) war.

And while it may appear at the outset that some will overpay, companies like Shell, Exxon Mobil (XOM), and Chevron (CVX) have solid 20- to 30-year plans.

That means low oil prices for one or two years may prove tough initially. But it’s really just a blip in this industry that’s used to the cycles of commodity prices.

The only question now is… who’s next?

Making Allies

Shell offered a whopping 50% premium over BG’s share price close of $13.59 on April 7.

While that premium appears rich, it’s not compared to the share price from a few years ago, which traded for more than $30, and last year’s prices, which were well over $20 as recently as September 2014.

BG Share Prices Hit Takeover Sweet Spot: BG Group Recent Price History

Shell paid a pretty penny, but I don’t think it overpaid, if you look ahead to the next 10 years. And I’m sure Shell will do a good job of exploiting BG’s strengths…

Shell has spent more than $56 billion in recent years bolstering its natural gas position.

It has properties all over the world, particularly in U.S. shale regions. BG not only adds to that position, but it also gives Shell something else: a solid global liquid natural gas (LNG) player.

With BG, the company will increase its LNG capacity by more than 70% over the next three years. This is something Shell has been trying to accomplish for a number of years, and with good reason…

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