LONDON (Alliance News) - Mega M&A made a dramatic reappearance on centre stage on Wednesday, with Royal Dutch Shell's GBP47 billion agreement to buy BG Group giving the London equity market, and, oil stocks in particular, a boost.
The two FTSE 100 oil and gas companies said they have reached an agreement on a cash and shares takeover of BG by Shell. Under the terms of the deal, BG shareholders will get 383 pence in cash plus 0.4454 of a Shell 'B' share per BG share. Based on the 90 trading day volume weighted average price of 2,170.3p per Shell B Share on Tuesday, the total value of the deal is 1,350.00p per BG share, a premium of around 50% to their closing price on Tuesday.
BG shares are up 35% at 1,232.00p around midday Wednesday, by far the biggest FTSE 100 gainer, while Shell B shares are the biggest losers, down 5.2% at 2,093.50p. Shell A shares are down 2.3%.
BG shareholders will own around 19% of the combined company, which will be the London market's largest. Shell said it expects the combination of the two companies to improve its global liquefied natural gas operations, particularly in Australia, and its deep water operations, particularly in Brazil, and Shell has forecast that it will generate pre-tax synergies of around USD2.5 billion per year and said there are further "significant" opportunities.
Royal Dutch Shell CEO Ben van Beurden, speaking on CNBC, said the company has been looking at BG Group for some years. He said the current low oil price environment made the deal attractive but that the merger wasn't just about the oil price.
Brewin Dolphin analyst Iain Armstrong commented: "Our initial opinion is quite cautious, given the industry’s track record in destroying shareholder value. However, in the long term, the combined group will benefit from being the second largest oil and gas company" after Exxon Mobil Corp.
Augustin Eden, research analyst at Accendo Markets, said the deal could spark further acquisition activity in the sector.
"A flexible, resilient group of oil majors who can borrow at low costs has led many to believe that 2015 will be a ripe year for acquisitions, and the party may have just got started...This could mark the beginning of a M&A rave, much like the one we saw in the late 1990s where all manner of small Oil & Gas stocks were snapped up by larger ones," Eden said.
BP, up 1.8% to 469.90 pence per share, is the third biggest gainer in the FTSE 100. Tullow Oil, up 9.1%, is the best performer in the FTSE 250, while Ophir Energy, up 6.9%, is the second biggest gainer.
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Markets: London shares are broadly higher, with the FTSE 100 fluctuating above and below the 7,000 point mark. US futures also point to a higher opening, with the DJIA, the S&P 500 and the Nasdaq 100 pointed up 0.1%.
FTSE 100: up 0.5% at 6,995.99
FTSE 250: up 0.4% at 17,597.11
AIM ALL-SHARE: up 0.3% at 724.68
GBP: up at USD1.4938
EUR: up at USD1.0862
GOLD: up at USD1,209.74 an ounce
OIL (Brent): down at USD58.16 a barrel
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Other Top Corporate News
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Budget carrier easyJet said its passenger numbers and load factor both improved in March year-on-year, while Aer Lingus Group also said its passenger numbers increased and its load factor improved in the month. EasyJet said its passenger numbers rose 7.5% year-on-year in March to hit 5.5 million, up from 5.1 million a year earlier. Its load factor also improved in March, rising 1.1 percentage points to 92.6% from 91.5%. Irish flag carrier Aer Lingus echoed the improvements shown by easyJet, with traffic, measured in revenue passenger kilometres, rising 10.6%. Aer Lingus also said its load factor improved in March, up 4.4 percentage points to 79.1% from 74.7% a year earlier. Aer Lingus' passenger numbers in the month rose 2.3%, though are down 0.8% in the year to date.
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J Sainsbury has registered its first sales growth since August last year, according to the latest Kantar Worldpanel UK grocery market data published on Wednesday, as Tesco also increased its sales but the growth of discounters Aldi and Lidl continued to eat into both the sales and market share of the big four supermarkets. Sainsbury's grew its sales by 0.2% in the 12 weeks to March 29 to GBP4.14 billion, up from GBP4.13 billion a year earlier. Its market share remains slightly lower year-on-year, down to 16.4% from 16.5%, but the rate at which it is losing market share slowed in the period, Kantar said. Tesco sales rose 0.3% in the period to GBP7.19 billion from GBP7.17 billion a year earlier, and its market share is at 28.4%, again slightly lower year-on-year from 28.6% in 2014.
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French media giant Vivendi has denied media speculation that it might seek to acquire pay-TV provider Sky, Bloomberg reported. According to the report, a representative of the Paris-based company said it was looking at Sky as one of many options to expand its own TV business Canal Plus. A report that appeared in the media earlier had said that Vivendi was considering the deal after reviewing targets in Turkey and other parts of Europe.
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Centamin said production from the Sukari gold mine fell quarter-on-quarter as expected as it begins mining the upper portions of the open pit, but reiterated its full-year guidance. The gold miner said total gold production from the Sukari gold mine in Egypt in the first quarter of 2015 totalled 108,233 ounces of gold, which is up 46% from a year earlier but down 16% quarter-on-quarter. Centamin said production in the first half of the year will be reduced as mining progresses through the upper portions of the next stage of open pit development.
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WS Atkins said it traded well in the fourth quarter of its financial year and expects to meet its expectations for the financial year to the end of March on an underlying basis. The FTSE 250-listed engineering and design consultancy said its performance in the UK improved in the second half, following a mixed first half of the year. The company reached resolution on its contract variation negotiations in its rail business in the second half, which helped boost its regional cash performance in the period. It has also completed the transition to a new operating structure in the UK, focused on four business units, with the implementation made effective from April 1.
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AIM Movers
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Lansdowne Oil & Gas, up 16%. The company said it has launched a strategic review to consider all of its options which could lead to a potential merger, acquisition, sale or farm-out of its assets after receiving proposals. Lansdowne said it will discuss a potential merger on a confidential basis with a third-party under a formal sale process. SeaEnergy, down 14%. The offshore energy services business and oil and gas investment company reported a wider pretax loss in 2014 as a rise in revenue was offset by an impairment made against its investment in Lansdowne Oil and Gas. Kalimantan Gold Corp, up 13%. The gold miner said it has been informed by the Ministry of Energy and Mineral Resources in Indonesia that the company's KSK contract of work has been renewed.
Trinity Exploration & Production, down 14%. The company said it has launched a strategic review of the business after receiving a number of conditional proposals which could lead to a merger, the sale or farm-out of some of the company's assets or the sale of the company. Following on from the approaches, Trinity said it has decided to enter discussions with interested parties under a formal sale process framework in order to enable discussions about a potential merger on a confidential basis, it said in a statement. Blinkx, down 9.0%. The internet media company said it expects to meet market expectations for the full-year to end-March, although earnings before interest, tax, depreciation, amortisation, acquisition and exceptional costs is expected to be significantly down from the previous year. Blinkx expects to post adjusted Ebitda of at least USD3 million, compared to USD39.6 million a year before, on revenue of at least USD210 million, compared to USD247.2 million. Starcom, down 8.1%. The wireless services company said a change to its accounting policy will mean its 2014 results are materially below market expectations. Starcom said it will no longer recognise revenue in respect of so-called "bill and hold" sales prior to the delivery of goods.
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Top Economics And General
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The Conservatives have lost some ground to Labour, according to YouGov polling published on Wednesday, but other surveys still have the two main UK political parties broadly level-pegging and others only fluctuating slightly. The Conservatives lost ground in the latest YouGov/The Sun poll, falling behind Labour after having led over the weekend. Labour lead the new poll with 35%, flat on the previous poll, but the Tories fell to 33% from 37%, with ground lost to UKIP which moved up to 14% from 12%. Support for the Liberal Democrats and the Green Party remained broadly flat.
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The Conservatives and Labour traded blows over the tax plans of the two parties, with Ed Miliband's pledge to abolish the UK's non-domicile rule attacked by Chancellor George Osborne, as Labour got a pledge of support from the Scottish National Party and a business group gave its backing to Tony Blair's comments on Tuesday about the risks posed by an in-out European Union referendum. Labour leader Ed Miliband on Wednesday is due to a give a speech in which he will outline plans for abolish the non-dom rule, which allows wealthy individuals to limit the tax paid on earnings made outside the UK, with a claim that the rule makes Britain "an offshore tax haven".
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Germany's factory orders declined unexpectedly in February, figures from Destatis showed. Factory orders dropped a seasonally and working-day-adjusted 0.9% month-over-month in February, defying economists' expectations for a 1.5% increase. In January, orders had fallen 2.6%, which was revised from a 3.9% decrease.
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Euro area retail sales declined in February for the first time in five months, in line with economists' expectations, data from Eurostat revealed. Retail sales fell 0.2% from January, when they grew 0.9%, which was revised from 1.1% reported earlier. The decline was in line with economists' expectations. It was the first fall since a 0.9% drop in September. Sales rose 3% annually in February, exceeding economists' forecast for 2.8% gain. The annual increase for January was revised to 3.2% from 3.7%.
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The French trade deficit decreased unexpectedly in February, as exports rose faster than imports, figures from the customs office showed. The foreign trade deficit shrank to EUR 3.4 billion in February from EUR 3.7 billion in the previous month. The deficit was forecast to increase to EUR 3.8 billion. Exports climbed 1.4% in February from the previous month, reversing a 2.5% decline in January.
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Swiss consumer prices dropped at a slower-than-expected pace in March, figures from the Federal Statistical Office showed. The consumer price index fell 0.9% year-over-year in March, slightly faster than February's 0.8% decrease. Economists had expected a 1.1% decline for the month. The latest fall in the CPI was the worst since June 2012, when it decreased 1.1%. Consumer Prices have fallen in every month since September, except October, when they were flat.
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Afternoon Watchlist (all times in BST)
14:30 US Fed's William Dudley speech
15:30 US EIA Crude Oil Stocks
19:00 US FOMC Minutes
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Thursday's Key UK Corporate Events
Scapa Group - Trading Update
PZ Cussons - Interim Management Statement
NetplayTV - Full Year Results
Cranswick - Q4 Trading Statement
Victrex - Trading Update
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Thursday's Key Economic Events (all times in BST)
00:01 UK RICS Housing Price Balance
06:00 Japan BoJ Monthly Economic Survey
07:00 Japan Machine Tool Orders preliminary
07:00 Germany Industrial Production
07:00 Germany Trade Balance and Current Account
09:30 UK Trade Balance
11:00 Ireland Consumer Price Index
12:00 UK BoE Interest Rate Decision and Asset Purchase Facility
13:30 Canada Building Permits
13:30 US Jobless Claims
13:30 Canada New Housing Price Index
15:00 US Wholesale Inventories
15:30 US EIA Natural Gas Storage
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