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* Spread between BG shares, Shell offer rises
* Oil price, regulatory approvals, risk-aversion to blame
* Deal still expected to complete in early 2016
* Graphic: http://link.reuters.com/qyf54w
By Ron Bousso
LONDON, Sept 8 (Reuters) - A look at valuations illustrateshow regulatory concerns and stubbornly low energy prices havestoked investor anxiety over Royal Dutch Shell's planned takeover of British rival BG Group.
Hailed as an audacious and industry-changing merger when itwas unveiled in April, the headline value of the deal hasslipped from 47 billion pounds ($72 billion) to around 38billion because of the lower price of Shell shares, whichclosely track oil prices.
Concerns that the Australian and Chinese regulators couldset high hurdles and, more broadly, that the persistently lowoil prices could yet lead Shell to rethink the deal aredampening sentiment. That has left BG shares trading at adiscount to the Shell cash and share offer.
The wider malaise infecting the global equity market inrecent weeks has also contributed to heightened caution amonginvestors.
That gap between the price of BG shares and the Shell cashand shares offer has widened over the past two weeks to anaverage of 16 percent from around 12 percent following theannouncement of the deal on April 8, showing that sense ofinvestor unease.
"The spread widening is driven by the risk-off environmentand unwinding (of positions)," said Lionel Melka, ChiefInvestment Officer at Paris-based asset management companyBernheim, Dreyfus & Co.
More tangibly, the Australian Competition and ConsumerCommission said last week it needed more time to review thetakeover.
It postponed a decision until September 17 as it weighswhether the merger could impact Australian gas prices and hindercompetition, particularly in Queensland where both companies aredeveloping large projects.
"In our view, the key risk is the Australian approval,"added Melka.
Investors were reminded of the risks associated with megamergers in July after reports that U.S. antitrust enforcersvoiced concerns that oilfield services provider Halliburton Co's $35 billion acquisition of smaller rival Baker HughesInc may lead to higher prices and lessinnovation.
However, the Shell-BG merger has received key approvals fromU.S., Brazilian and European regulators but still requires thegreen light from two Australian bodies as well asChina.
KEEPING THE FAITH
The deal was seen as a bold bet by Shell on the oil pricerecovering to $80-$90 per barrel within three years, but itcurrently remains under $50.
Despite the jitters, analysts still expect the deal to gothrough in its original form.
They largely agree with Shell Chief Executive Ben vanBeurden's assertion that the merger would make Shell "a simplerand more profitable company, making Shell more resilient in aworld where oil prices could remain low for some time."
BG is seen as much more vulnerable to a prolonged downturnsince most of its projects break even at price much higher thanthose for Shell.
Shell's low gearing allows it to finance the acquisitionwhile maintaining dividends while BG's increased production willboost cash flow, UBS analysts said in a note.
The industrial logic of the deal is still compelling formany investors.
"Concerns about the deal not going through due to low oilprices aren't, in our view, justified... Overall we find therisk-reward currently pretty attractive," said Melka, who hasinvested in BG shares.
BG's rapid oil and gas output growth in the coming years isset to make the combined entity the top producer amonginternational oil companies, leapfrogging Exxon Mobil at around 4 million barrels of oil equivalent per day by 2020,according to analysts at U.S. investment bank Simmons andCompany.
The acquisition will make the combined entity the world'stop liquified natural gas (LNG) producer and the largestinvestor in Brazil's deepwater oil production.
A Shell spokesman declined to comment, stressing that thedeal was on course for completion in early 2016.
BG BUYING OPPORTUNITY?
Any delays to the deal could result in BG shareholdersmissing out on one or possibly two Shell dividend payouts,
That would account for up to 3.8 percent of the spreadbetween the two shares, according to Anish Kapadia, ManagingDirector, International Upstream Research at U.S investment bankTudor, Pickering Holt and Co.
The gap between the offer valuation and BG share price wouldappear to offer pickings for arbitrage deals -- the buying andselling of related assets to profit from price differentials.
However, the sheer scale of the deal militates against this-- buying 1 percent of BG shares requires more than 300 millionpounds.
"The deal is so big that there are not enough arbitragersthat can keep the spread in a tight ranges," said Niels Lammertsvan Bueren, senior portfolio manager at Amsterdam-basedarbitrage fund TRZ Funds.
"I don't think anyone wants to go into the arbitrage too bigso the spread could widen further," he added.
($1 = 0.6503 pounds) (Reporting by Ron Bousso; Editing by Keith Weir)
