LONDON MARKET COMMENT: BG Group Shares Lead Gains On Shell Deal

LONDON (Alliance News) - The FTSE 100 is higher at mid-morning Wednesday, with BG Group shares surging 37% after the British oil and gas company and Royal Dutch Shell said they have reached an agreement on a cash and shares takeover of BG by Shell, valuing BG at around GBP47 billion.

Spurred on by the M&A activity, the FTSE 100 retook the 7,000 mark a few minutes after the opening bell, and now trades up 0.5% at 6,996.50. The FTSE 250 is trading up 0.3% at 17,570.32, while the AIM All-Share is up 0.3% at 724.2.

European stocks are mixed, with the French CAC 40 up 0.2% and the German DAX 30 down 0.2%.

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 2,170.3 pence per Shell 'B' Share on April 7, the total value of the deal is 1,350.00 pence per BG share, a premium of around 50% to their closing price on Tuesday. BG shares are currently quoted at 1,246.00p.

Royal Dutch Shell CEO Ben van Beurden said on CNBC that the company has been looking at BG Group for some years and that the oil price environment made the deal attractive but that merger wasn't just about the oil price.

BG shareholders will own around 19% of the combined company. 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.

As BG Group shares are the best performer, Royal Dutch Shell 'B' are the biggest loser in the blue-chip index, down 4.7%. Both stocks had performed well on Tuesday, with BG Group ending as the best performer in the FTSE 100, up 6.3%, and Royal Dutch Shell 'B' up 3.9%.

"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, writes Brewin Dolphin analyst Iain Armstrong.

Industry peer BP, up 2.8%, is another top performer in the FTSE 100.

Accendo analyst Augustin Eden says: "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."

Oil-related stocks also are amongst the best performers in the FTSE 250. Tullow Oil is up 10%, while Ophir Energy is up 6.7%. SOCO International is up 2.2%, while Premier Oil is up 2.0%.

Oil prices fell in Asian deals Wednesday after Saudi Arabia reported record production of 10.3 million barrels per day in March, and remain lower on the day. Brent Oil is trading down at USD58.30 a barrel, while West Texas Intermediate is down at USD52.78 a barrel. US EIA crude oil stocks are due to be reported at 1530 BST

Outside the oil sector, broadcaster Sky, up 1.8%, is also amongst the best performers in the blue-chip index. 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.

EasyJet, up 0.6%, said its passenger numbers and load factor both improved in March year-on-year, while Aer Lingus, down 1.0%, also said its passenger numbers increased and its load factor improved in the month.

International Consolidated Airlines Group, owner of British Airways and Iberia, is expected to provide its own March traffic statistics later Wednesday.

The market focus will turn to the US later in the day, as the Federal Reserve is due to release the minutes from its most recent monetary policy meeting at 1900 BST. "[The minutes] are expected to be instructive in the context of the thinking behind last month?s decision by the Federal Reserve to drop 'patience', from their guidance language, while at the same time revising down their growth and inflation forecasts," says CMC Markets chief market analyst Michael Hewson.

The start of the US corporate earnings season also will be in focus, with aluminium producer Alcoa, traditionally the first to report, releasing its 2015 first-quarter results after the US market close.

US futures point to a higher opening, with the DJIA, the S&P 500 and the Nasdaq 100 up 0.2%.

In Europe, German factory orders unexpectedly dropped for a second straight month in February due to stagnation in domestic demand and a decline in foreign bookings, suggesting that activity in the biggest euro area economy remained subdued at the start of the year.

Factory orders dropped a seasonally-and-working-day adjusted 0.9% from January, data from the Economy Ministry showed, defying economists' expectations for a 1.5% gain in the volatile indicator.

Greek President Alexis Tsipras' visits Moscow to see Russian President Vladimir Putin on Wednesday. Speculation is rife that Russia could offer Greece financial aid if loan talks with the EU end in failure. The Greek repayment deadline to International Monetary Fund is on Thursday, while a deal to secure funding from eurozone creditors appears weeks away.

By Daniel Ruiz; danielruiz@alliancenews.com

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