UK-based Royal Dutch Shell (NYSE: RDS.A) agreed Wednesday to buy Britain’s BG Group in a deal worth $70 billion in cash and stock. The mega-merger creates a massive European energy conglomerate in one of the largest deals of the decade.
The news comes at a time when mergers are the norm for oil service providers amid slumping oil prices.
If approved by both companies’ shareholders, BG Group shareholders get 383 pence ($5.70) in cash, plus 0.4454 Shell B shares for each BG share. BG shareholders will also own 19 percent of the company.
London-listed shares for BG soared by 38 percent while Shell’s fell by 2 percent amidst the announcement.
“The result will be a more competitive, stronger company for both sets of shareholders in today’s volatile oil price world,” Shell chairman Jorma Ollila said in a statement.
Helge Lund, BG’s chief executive, said the offer delivers “attractive returns to shareholders and has strong strategic logic.”
Shell estimates the deal would produce increases of more than $2.5 billion a year and cut overlapping cost.
The price of oil has reached a six-year low, falling more than 50 percent since last June as a result of oversupply, primarily due to increased drilling in the US. Also, conflict in the Middle East further adds to the burden of its volatility.
In a statement released Tuesday, Goldman Sachs stated that prices should remain flat to slow down US production growth.
Surging more than 6 percent in US trading Monday (WTI), the price of oil has recently been on a wild ride. Both benchmarks have posted strong gains in the past two session.