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Shell promises more cuts to win investors over on BG deal

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Michael Bow: 15 Dec 2015

Royal Dutch Shell moved to shore up support for its £35bn BG Group takeover yesterday, by promising to slash more jobs amid concerns shareholders could rebel against the deal. 

The Anglo-Dutch oil giant will axe a further 2,800 jobs around the world on top of 7,500 roles it had previously announced were for the chop.

The losses – equivalent to 3 per cent of the combined group’s workforce – coincide with the final furlong of the long-running takeover saga, which has been put under pressure due to this year’s oil price rout. 

The company needs shareholders to vote through the plans when it holds a ballot next February, but Shell was put on alert yesterday when one of its shareholders, Standard Life, questioned the deal.

The fund manager, which owns a 1.7 per cent stake in Shell and 1.3 per cent of BG, said the takeover did not make “financial sense” given the change in the oil price. 

“You have to be pretty bullish on the oil price to make this deal work,” Standard Life Investments’ head of equities David Cumming said. 

“Shareholders could vote the deal down, and the break fee is pretty low, so I think Shell will come under pressure over the next few months to say how the deal is going to work.” 

Shell would have to pay BG a £750m break fee to abandon the plan. 

The Qatar Investment Authority, which is a top five owner of Shell and also owns BG shares, sold stock worth nearly £1bn in both companies last month, sparking concerns that it did not support the plans. It has not commented on the share sales.

Oil prices have gone south since the deal was struck on 8 April, when they were forecast to rise to $70 a barrel. Shell’s chief executive Ben van Beurden lowered the assumption to $60 but with prices falling below $40 recently, questions have been raised about the logic of the tie-up.

In April Shell agreed to pay 383p in cash and 0.4454 Shell shares for every BG share, valuing BG shares at the time at 1,350p each. 

Shell shares have since slid from about 2,075p to 1,428p yesterday, cutting the value of the deal from £47bn to £35bn and sparking concerns among investors such as Standard Life. 

Losing a shareholder vote would be deeply embarrassing for Shell, given the number of regulatory hurdles the company has had to clear to get to this stage of the takeover. 

Yesterday Shell said it had won the last of the five regulatory approvals needed to close the deal, after Chinese anti-trust regulators gave the tie-up the thumbs up, joining two regulators in Australia and one each in Brazil and the EU in backing the deal. 

Shell employs about 100,000 people. It did not specify where the cuts would come, but added that it would undertake a “comprehensive review” in 2016 of its UK office network to see if some operations could be merged. 

Mr Van Beurden said: “This is a strategic deal that will make Shell a more profitable and resilient company in a world where oil and gas prices could remain lower for some time. We will now seek approval from both sets of shareholders as we move towards deal completion in early 2016.”

Ben van Beurden said that Shell would seek approval for the deal from shareholders.

SOURCE

*Headline beginning “BvB happy… is by John Donovan, not The Independent. 

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