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Shell: Total speculation Shell: Total speculation

Shell has reportedly admitted that it is vulnerable to takeover by France’s Total.

Posted 18 August 04

(Datamonitor) – The furor over Shell’s reserve estimate downgrades makes it vulnerable to a takeover by France’s Total, according to the UK’s Observer newspaper. However, with high oil prices fuelling an intemperate M&A climate and Shell being in a stronger position than has been portrayed, such an occurrence seems rather unlikely.

The Sunday newspaper’s suggestion that Shell bosses fear Total “will launch a raid” on the troubled Anglo-Dutch energy group is the latest snippet of conjecture to emerge from the mass of rumors that have swirled around the oil majors in recent months.

The speculation was triggered after Shell downgraded its reserve estimates, and only last month BP was touted as the obvious merger partner. However, this was quickly dismissed as nonsense with the size of the two companies making it unlikely that such a deal could make it past the regulators. Now the spotlight has turned to Total.

At least the suggestion of a Total-Shell merger has some logical foundations. Total is smaller than BP, so the regulatory hurdle is potentially surmountable. Moreover, the company is a better strategic fit upstream. Total’s position in the Middle East would be a blessing for Shell, and if the two players united they would have a stranglehold on the Nigerian market.

Shell and Total have refused to comment directly on the article. Total has simply reaffirmed its statement of August 5 that it will not be examining large-scale merger and acquisition possibilities until oil prices moderate, declaring that “a company like Total doesn’t change its strategy in the space of 10 days.”

Overall, the prospect of a merger between the two remains remote. Total’s smaller scale may give it a chance of regulatory approval, but it also means it lacks the might to take over a company almost twice its size. Furthermore, the widespread speculation has been concentrating on Shell’s current market valuation, which is certainly not a fair reflection of its price should it be put up for sale. It must not be forgotten that, despite recent problems, it is a global company with excellent assets and a strong and committed workforce; hardly a soft target desperately in need of rescue.

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