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Major shareholder sheds BG stake as merger vote looms

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The fund management company cut its holding from 2.2 percent to 0.9 percent and continued offloading shares even after Shell published the deal prospectus, in which the Anglo-Dutch oil major revealed further capex and opex cuts that would boost the merger’s appeal.

Although the mega-merger was announced at a time when oil was pushing multi-year lows, prices have continued sliding since, eroding the immediate financial appeal of the combination.

Shell said last month that it expects the acquisition to break even with Brent crude prices in the low $60s in 2016, while the deal would add to operating cash flow per share at $50 a barrel.

Brent has been trading lower than $40 per barrel for the better part of the past month, dropping to as low as $36. Most industry analysts predict that the oil glut will persist for the first half of 2016, prolonging the depressed price environment.

“OPEC, Russia and the U.S. beat our initial supply expectations, adding to an existing inventory headwind. For 2016 we think of it as the market rebalancing year, but only from 2H,” Alliance Bernstein said. The adviser noted that it expected Brent prices to average $50 this year and climb to $70 a barrel in 2017, and to $80 per barrel in 2018.

Shell and BG’s shareholders are set to vote on the merger on January 27 and 28, respectively, with Shell required to secure backing from 50 percent of its shareholders, while BG must win approval from 75 percent of its investors. The merger is likely to become effective February 15, Shell said.

Shell’s share price closed 2015 with a 29.14 percent loss at 1,526.00p, dropping about six percent in the month of December, which compares with a 14 percent monthly drop in Brent prices and a 30-percent drop year-on-year. BG shares ended last year with a gain of 14 percent, but at 985.00p, the share price is some 15 percent lower than the post-merger announcement peak in early April. BG shares also trade some five percent lower than Shell’s offer price.

As of 07:37 GMT, Monday, 04 January, Royal Dutch Shell Plc ‘A’ share price is 1,699.50p.

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by Veselin ValchevMonday, 04 Jan 2016, 07:35 GMT

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