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BG Group share price: Gap between market valuation and Shell offer widens

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…the growing gap between the offer value and the market value indicates increasing investor anxiety over the merger, thus markets are beginning to question the deal’s prospects of success…

by Veselin Valchev: 26 Aug 2015

BG Group Plc’s (LON:BG) share price is sliding further away from the proposed offer by larger London-listed energy peer Royal Dutch Shell, signalling fading investor confidence that the deal will complete as planned, the Financial Times reported earlier this week.

BG’s share price had slipped 1.38 percent to 947.30p as of 14:01 BST today, underperforming the FTSE 100 which was flat. This compares with Shell’s proposed price of about 1,106p (383p in cash plus 0.4454 Shell B shares per BG share), equating to a discount of about 14.4 percent. At one point on ‘Black Monday’, traders cited by FT said that the spread widened to as much as 17 percent.

When the deal was announced on April 8, BG shares surged more than 30 percent, to about 1,200p, 11.1 percent below Shell’s offer.

While not exceedingly large, the growing gap between the offer value and the market value indicates increasing investor anxiety over the merger, thus markets are beginning to question the deal’s prospects of success, the traders said.

Shell has vigorously defended the logic of the tie-up, saying that it makes economic sense even in a scenario of prolonged low oil prices. The company has stated that the merger will bring in direct synergies of $2.5 billion per year, in addition to potential “significant value” beyond that.

So far the tie-up remains on track to be completed in early 2016 and the deal has received regulatory approval in Brazil, the US and South Korea, the Anglo-Dutch oil major noted as it reported Q2 results last month.

Separately, in recent weeks Shell has announced a string of deals in Argentina, Myanmar and China, while also expressing interest in doing business in Iran, once sanctions have been lifted.

As of 14:59 BST, Wednesday, 26 August, BG Group plc share price is 949.35p.

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