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Sydney Morning Herald: Shell one step closer to $570b BP merger

October 25, 2006

SHELL is at the centre of buyout moves and merger speculation after unveiling plans to spend $C7.7 billion ($9 billion) simplifying its North American business.

This was seen by some as a step towards a £230 billion ($570 billion) mega-merger with BP.

The Anglo-Dutch oil group has also had its name linked with Premier Oil, although most industry experts rule out Shell being the unnamed company in takeover talks with the exploration firm.

Shell said on Monday it would buy the 22 per cent it did not own in Shell Canada, which is independently managed. It is quoted on the Toronto stock exchange and heavily involved with oil sands production in Alberta.

“We think the interests of the Shell Canada minority shareholders are well served by accepting the cash offer we are proposing,” said Jeroen van der Veer, Shell’s chief executive.

A Shell spokeswoman said the deal would speed up decision making and integrate the business into the Shell group.

“It naturally follows from the successful unification of the wider Royal Dutch Shell company in 2005 to a group with one chief executive and one headquarters,” she added.

Shell must still secure the support of its subsidiary’s board and more than half of the outstanding shares being tendered, but few industry experts expect opposition.

Equity analysts said the move was “good housekeeping” and may be one that could more easily be achieved by Shell before any possible tie-up with BP.

Earlier this year Britain’s biggest company acknowledged it had been looking at the idea of a merger as part of “scenario planning”. The spokeswoman declined to discuss the possibility of mergers with BP or Premier Oil.

Recently Wall Street analysts have issued research notes on the benefits to both sides of a tie-up, although they accept there would be big regulatory hurdles.

“A Shell-BP merger would make a lot of sense and would allow [the BP chief executive Lord] John Browne to leave his company on a high note [in 2008],” said Fadel Gheit, an analyst with Oppenheimer & Co.

Mr Gheit issued a note last week saying Shell and BP could make annual savings of more than $US5 billion and significantly improve the new company’s operating efficiency. This would help it compete with ExxonMobil.

BP’s share price has risen by less than 6 per cent and Shell’s less than 8 per cent this year while ExxonMobil’s has soared by 24 per cent. Mr Gheit, unlike many of his fellow analysts, thinks regulatory clearance could be achieved without too many divestitures being demanded.

Premier Oil said Monday it had received a preliminary takeover offer, although it admitted talks were at an “extremely early stage”.

Premier’s shares rose 7 per cent but the group admitted “the proposal is subject to a number of conditions, including due diligence and financing”.

The reference to financing ruled out, in many minds, any suggestion that a company as big as Shell was involved.

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