As expected Europe’s largest oil company Royal Dutch Shell plc RDS.A has received the final Australian approval before Christmas to proceed with the acquisition of BG Group plc − a leading upstream energy player in the UK.
The Foreign Investment Review Board of Australia has approved the deal with which Shell crossed an important milestone for its BG Group acquisition. During the first half of this year, the integrated energy major had announced its purchase deal with BG Group plc. Per the agreement, Shell is expected to acquire BG Group for a total consideration of $70 billion – including both cash and equity payments. This is the biggest merger in the energy space in a decade.
If everything falls in place, the transaction will likely be completed by early 2016. Many analysts are anticipating the total value of the combined company to be more than $296 billion. Hence, with the transaction, Shell – currently with market capitalization of $157.44 billion – will get closer to the world’s largest publicly traded oil company, Exxon Mobil Corporation XOM, which is currently valued at $331.16 billion.
Moreover, some analysts believe that, in terms of market value, the new company will be twice the size of London-based BP plc BP and even surpass Chevron Corp CVX.
Shell is one of the largest integrated energy firms in the world with a strong and diversified portfolio of development projects that offer attractive long-term opportunities. However, the oil price slump has affected Shell’s earnings and cash flows, in particular at its upstream unit. Therefore, Shell ADRs are expected to remain soft until commodity prices recover sufficiently.
As a result, Shell currently carries a Zacks Rank #3 (Hold), implying that the stock will perform in line with the broader U.S. equity market over the next one to three months.
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