With the continuing slump in the oil price, there are signs that investors may be concerned that Royal Dutch Shell’s near £50bn cash and share deal to take over BG might not go ahead.
But in a new note, analysts at Barclays have downplayed these worries:
Over the past two weeks the spread between the theoretical price implied for BG shares by the Royal Dutch Shell share price following the proposed combination and the actual BG share price has widened to around11% (adjusted for dividends), compared to the average of 8% since the announcement of the deal and at one point reached nearly 13%.
This seems to reflect a perception that with falling oil prices the risk of the deal not completing has increased. There is a relatively small break fee of £750m that Shell would have to pay to BG if it were to walk away, but we do see this as unlikely.
First with the deal still awaiting three main regulatory approvals– from the EU, China and Australia – it is still a number of months before closing is likely.
Secondly, the transaction is based on the longer-term view of the value the transaction can add, not the shorter-term volatility that the market has experienced over the past few weeks. We continue to see a high probability of the transaction closing and rate both Royal Dutch Shell and BG Group overweight.
But with Brent crude down again - currently 1.27% lower at $48.93 a barrel - Shell B shares have slipped 14.5p to 1631.5p and BG is 2.5p lower at 962.4p.
