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Royal Dutch Shell aims to bolster case for BG takeover

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Royal Dutch Shell moved to bolster shareholder support for its proposed takeover of BG Group after Chinese regulators on Monday gave the deal their approval.

Shell announced that the combined group would cut up to 2,800 staff upon completion, or 3 per cent of the enlarged workforce, as it looks to secure one of the largest energy deals of recent years amid the oil price crash. Brent crude was trading at $37 on Monday.

Shares in BG fell 0.7 per cent on Monday to close at £9.20, and are about 10 per cent lower than the price outlined by Shell in its cash-and-stock bid, partly reflecting some concern that shareholders might not approve the deal.

The takeover requires the support of a majority of Shell shareholders and 75 per cent of those at BG.

One top-20 investor in Shell said: "The takeover price is far too expensive with oil trading at these levels. Investors should vote against it, but many probably won't."

A smaller investor in Shell and BG said the deal, at the current oil price, was "very expensive and makes less sense" compared to when there was hope of crude rising to $70 per barrel.

Another smaller investor said: "Companies always say they can make synergies out of these deals, but it is not clear that Shell can with BG, if the oil price remains low."

However, Chris Wheaton of Allianz Global Investors, another top-20 Shell shareholder, expressed support for the BG takeover, saying that it would strengthen its position in deepwater oil production and liquefied natural gas

"That's what the BG deal brings to Shell — some very good deep water assets and some additional liquefied natural gas production and sales volumes," he said.

"The market is taking the current oil price, assuming it lasts forever and saying it's a bad deal for Shell shareholders as it reduces Shell's ability to pay a dividend. I don't share that scepticism."

When Shell unveiled its proposed takeover of BG in April, its long-term planning range for the oil price was $70 to $110 per barrel for Brent.

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In July, Shell said that the deal worked at $70 per barrel, and last month Ben van Beurden, chief executive, lowered the anticipated break-even oil price for the combined group to the "mid-60s".

Shell announced on Monday that it had received unconditional approval for the BG takeover from China's ministry of commerce, reassuring investors who had worried that these regulators might demand asset sales.

The combined Shell-BG Group would be the world's largest supplier of liquefied natural gas, and China is a major LNG importer.

Shell has obtained clearance for the BG takeover from regulators in Brazil, the EU and Australia, but executives were concerned that Chinese approval would be the most difficult to secure.

Confirming Shell now had all the required regulatory approvals, Mr van Beurden said: "This is a strategic deal that will make Shell a more profitable and resilient company in a world where oil and gas prices could remain lower for some time.

"We will now seek approval from both sets of shareholders as we move towards deal completion in early 2016."

Analysts at Barclays said that if both sets of shareholders approved the deal, Shell's takeover of BG could now be completed by late January or mid-February.

"Although the spread between the BG share price and implied offer price has widened in recent weeks we see the comments by [Mr van Beurden] as further evidence, if it was needed, as commitment to the deal by Shell even in a weaker oil price environment," the analysts added.

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