Photographer: Luke Sharrett/Bloomberg

Good Month for BG Chairman: Gets Married, Sells Company to Shell

It was a month of marriages for BG Group Plc Chairman Andrew Gould -- for himself and his company.

While the 68-year-old Gould was getting married around Easter, he was finishing up selling BG to Royal Dutch Shell Plc for $70 billion in a speedily arranged deal that is the biggest energy transaction in at least a decade.

On March 15, shortly after Shell’s board approved the merger idea, Shell Chief Executive Officer Ben van Beurden called Gould to propose the deal, according to people involved in the talks who asked not to be identified.

Just 24 days later, after van Beurden and Gould met face-to-face in London, the deal was sealed after some haggling over price.

The quickness may reflect the fact that Shell has looked closely at BG as a merger target on-and-off for several years. On at least two occasions Shell executives took the acquisition idea to their board, which declined to pursue it.

This time, with oil prices slumping and Shell looking to boost its natural gas reserves, the merger made sense to the company.

“Shell’s bid for BG Group is proof that if you repeat a rumor long enough, it might eventually come true,” said Neil Morton, an analyst at Investec Bank Plc.

Shell hired Bank of America Corp.’s Merrill Lynch as its adviser before the end of the year and beefed up its team with lawyers and other advisers in January. Negotiations also went quickly because van Beurden and Gould handled most of the details, with little intervention from others. But the biggest factor in greasing the talks may have been Shell’s offer, which ultimately represented a 50 percent premium for BG, the people said.

Skeptical Investors

Investors were skeptical of the stock and cash acquisition, which isn’t expected to boost earnings per share until 2017. The price of the class of share being used to buy BG fell the most since 2008 on concern the company is overpaying.

BG CEO Helge Lund, 52, took over the company only in February and, while he was known for deal-making at his previous company, Statoil ASA, he played a minor role in the Shell transaction, according to people familiar with the deal. He will leave the company once the merger is completed and will get about $43 million for a year’s work.

The fundamental logic of a merger “always existed, what has happened in the last month is that it has become very compelling from a value perspective,” van Beurden said on a conference call on Wednesday.

Cost Savings

The merged company, led by van Beurden, 56, will boast a market value twice the size of BP Plc and surpass Chevron Corp. Shell, struggling to rebound from its worst production performance in 17 years, will swell its oil and natural gas reserves by 28 percent with the combination and inherit a management team that carved out a niche in liquefied natural gas, or LNG.

Shell will pay 383 pence in cash and 0.4454 of its B shares for each BG share, the companies said on Wednesday. That’s equal to about 1,367 pence a share, valuing BG at about 47 billion pounds, a premium of about 50 percent on BG’s closing share price Tuesday.

To win over shareholders, Shell pledged cost savings of $2.5 billion, asset disposals of at least $30 billion within four years and a giant share buyback of $25 billion from 2017 to 2020.

BG was forged from the exploration arm of the U.K.’s former state-owned gas monopoly, British Gas, that was privatized by Margaret Thatcher in the 1980s.

The company was led for more than a decade by Frank Chapman, who built a global LNG business and drilled wells from Kazakhstan to Brazil. The company’s market value rose more than fivefold during his tenure, outperforming larger rivals including Shell and BP. Chapman retired at the end of 2012.

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