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Shell-BG deal wins more support, but concerns persist

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By Ron Bousso and Karolin Schaps

LONDON, Jan 14 Two weeks before shareholders are due to vote on Royal Dutch Shell $48 billion bid for BG Group, more investors have come out in support of the deal, despite lingering concerns about the effect of falling oil prices on the sector.

The bid has already won the backing of several major shareholders and advisory groups, with only a handful of investors publicly arguing against its merits even as oil prices have dropped below $30 a barrel for the first time in 12 years.

On Thursday, British shareholder advisory firm PIRC recommended shareholders vote in favour of the deal, which would transform Shell into the world’s top liquefied natural gas (LNG) trader and a major deepwater oil producer.

Two other advisory groups, Glass Lewis and ISS, issued similar recommendations to investors last week.

Earlier this week, top 20 Shell shareholder Invesco also lent its support, reinforcing the widespread impression this is a done deal – even if this is not yet fully reflected in the BG share price.

“Given the fragmented nature of the shareholder base, and the ability of many holders to have already voted with their feet and exited the stock, the chances of ‘no’ votes crossing the 50 percent threshold, (are) extremely small in my opinion,” said Martin Walker, Invesco’s UK equities fund manager.

“As a result, for Shell management the next few weeks are really about minimising the embarrassment of high profile dissent,” he wrote in a note to clients.

Top 30 Shell shareholder Allianz Energy fund also voiced support.

“I am positive on the deal because if you look at Shell’s historic financial performance, the businesses that have made consistently the highest return on capital are deepwater and LNG,” Christopher Wheaton, manager of the Allianz Energy fund, told Reuters.

Confounding many investors and observers, however, is the fact that BG’s share price still lags the level implied by Shell’s share-and-cash offer.

The gap has remained stubbornly wide in recent weeks, even after the deal received all the required regulatory approvals. On Thursday, it was just below 7 percent.

The spread is a reflection of ongoing concerns over the energy sector as a whole following the sharp drop in oil prices since the start of the year, investors said.

“BG shares feel mispriced. If you try to put it up against comparable yields it looks ridiculous given how many assume this is a done deal,” one fund manager said.

Shell B shares were up 1.4 percent and BG shares were up 0.5 percent at 1405 GMT compared with 0.8 percent gains for the broader sector index. Brent crude was at $30.58 a barrel.

Standard Life Investment last week became the first and so far the only major shareholder opposed to the deal, due to a weak outlook for oil prices and risks related to BG’s assets in Brazil.

Shell has outlined a slew of cost-saving measure, asset sales and job cuts aimed at boosting its balance sheet to help finance the deal and weather the downturn.

(Editing by Mark Trevelyan)


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