Royal Dutch Shell Plc agreed to buy smaller rival BG Group (BGG) for $70 billion in the first oil super-merger in more than a decade to close the gap with the world’s largest oil firm U.S. ExxonMobil Inc. (XOM).
In a joint statement, the two firms said Shell would pay a mix of cash and shares that would value each BG share at around 1,350 pence, more than 50% over its average price during the last three months.
Britain’s BG had a market capitalisation of $46 billion as of Tuesday’s close, while Shell was worth $202 billion. Exxon, the world’s largest oil company by market value, was worth $360 billion.
“We have two very strong portfolios combining globally in deep water and integrated gas,” Shell’s CEO Ben van Beurden told a news conference.
The deal would give Anglo-Dutch Shell access to BG’s multi-billion dollar projects in Brazil, East Africa, Australia, Kazakhstan and Egypt, including some of the world’s most ambitious liquefied natural gas (LNG) projects.
Van Beurden said the presence of two large firms in Australia, Brazil and China and the E.U. might require a detailed conversation with anti-trust authorities.
The collapse in global oil prices has sparked much speculation about mergers in the industry and BG has often been cited as a potential target.
The merger is the biggest announced deal globally this year, and the biggest in the oil sector in over a decade.
BG shares have tumbled nearly 28% since mid-June, when the slump in global oil prices started. That compares with a 17.2% decline in the FTSE All Share Oil and Gas Index and a 3.3% fall for Shell’s Amsterdam-listed shares.
In early trade in London, BG’s shares rose 38%, while Shell’s were down 2.2%.
The halving in crude prices on the back of a shale oil boom in the U.S. and a decision by Saudi Arabia not to cut production has created an environment similar to the early 2000s, when many large mergers took place.
Back then, oil major BP Plc (BP) acquired rival Amoco and Arco, Exxon bought Mobil and Chevron Corp (CVX) merged with Texaco.
The deal, which should generate pretax synergies of around 2.5 billion pounds per year, will result in BG shareholders owning around 19% of the combined group.
The two groups said Shell would pay a dividend of $1.88 per ordinary share in 2015 and at least the same amount in 2016.
Shell also expects to start a share buyback programme in 2017 of at least $25 billion from 2017 to 2020.
Shell said the deal would boost its proven oil and gas reserves by 25%. The firm also plans to increase asset sales to $30 billion between 2016-2018 on the back of the deal.