Despite the price of oil, the market today is showing it is friendly to acquisitions – at a 50% premium no less, Royal Dutch Shell plc reportedly has agreed to purchase BG Group plc for $70 billion.
That's right, I said billion. This is literally a big deal.
This morning, the Boards of Royal Dutch Shell plc and BG Group plc announced that they have reached an agreement on the terms of a recommended cash and share offer.
The acquisition marks the largest oil and gas deal in recent years, and is obviously at a time when commodity prices are volatile and have seen better days. The price of crude was $50.96 this morning.
While investors were reportedly "skeptical of the stock and cash acquisition, which isn't expected to boost earnings per share until 2017," the power-play merger and the high purchase price reflect Shell's optimism in future prices.
The acquisition reportedly "will swell [Shell's] oil and natural gas reserves by 28 percent with the combination and [Shell will] inherit a management team that carved out a unique niche in liquefied natural gas, or LNG." Shell is "betting LNG will play an increasing role in emerging economies seeking alternatives to dirtier energy sources such as coal."
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