– BG Group plc (BG/ LN): Shell announced it got unconditional MOFCOM clearance. It also released a separate statement confirming the previously upgraded $3.5bn synergy number but highlighting that it expects an overall potential reduction of approx 2,800 roles globally across the combined group, in addition to the previously announced plans to reduce Shell’s headcount and contractor positions by 7,500 globally.
Although MOFCOM clearance was very well signalled (as highlighted by the limited 85bps spread tightening today – not fully offsetting Friday afternoon’s significant widening), the unconditional nature of the quicker than anticipated clearance was slightly surprising. Nevertheless, all and the only focus now lies in the upcoming Shell shareholder vote (offer documentation to be published latest by 11 January 2016 and most likely shareholder votes to be held late January/February 2016) and whether Shell’s board will keep its recommendation or not.
Although Shell remains consistent with the message for early 2016 deal closing (and is not giving the slightest indication that a recommendation change is a distinct possibility) and we fully appreciate the rationale/strategy that the combined company will be much less capital-intensive and will be more growth focused (and that a company makes long-term decisions and doesn’t get sidetracked by short-term oil price volatility), we would remain highly nervous in the current oil price collapse environment that even a slightest change in tone by Shell or one of Shell’s UK institutional shareholder publicly talking out against the deal in next couple of weeks could seriously damage the spread (currently trading around GBp 100).
Although we still believe that on balance, the deal will get done (given stubborn position by Shell’s CEO/board and the relatively low 50% shareholder acceptance threshold required) we would currently stay away from the situation, but would revisit on potential, future public negative Shell shareholder comments.
Added caveat: Given RDSB/A’s 4Q15 ex-dividend date set for 19 February 2016, most likely that there will be about GBp 14 in dividend leakage in the spread (without any additional BG dividend supplement).