BG Group shares rocket on recommended £47bn takeover offer from Shell

Shares in BG Group rocketed on Wednesday after the natural gas company recommended a £47bn cash-and-shares takeover offer by Royal Dutch Shell, sparking speculation about a fresh wave of M&A activity in the sector.

The takeover is expected to create the world's second-largest oil company after ExxonMobil and the biggest gas producer.

BG chairman Andrew Gould said the deal represents "an attractive return" for shareholders, following a sharp slump in the share price over the last year following the rout in oil markets.

"The boards of Shell and BG are pleased to announce that they have reached agreement on the terms of a recommended cash and share offer to be made by Shell for the entire issued and to be issued share capital of BG," the companies said in a joint statement.

The bid values BG at around 1,350p per share, a 50% premium to its closing price of 910.4p on Tuesday.

If the transaction completes, BG Group shareholders will be left with a 19% stake in the enlarged group.

"Bold, strategic moves shape our industry. BG and Shell are a great fit. This transaction fits with our strategy and our read on the industry landscape around us," said Shell chief executive Ben van Beurden,

Shell, which expects through BG to accelerate its growth strategy in global liquified natural gas and deep water, said the deal will add 25% to its proved oil and gas reserves and 20% to production based on 2014 figures.

The Anglo-Dutch giant also reckons that buying BG will create pre-tax synergies of around $2.5bn per annum.

In return, Shell said BG shareholders will benefit from the dividends currently being enjoyed by its own shareholders and has revealed that intends to pay dividends of $1.88 per share in 2015 and at least that amount in 2016. This was in line with 2014. It also expects to start a three-year share buyback in 2017 of at least $25bn.

BG chairman Gould said: "The BG board remains confident in BG's long-term prospects under the leadership of Helge Lund. Shell's offer, however, allows us to accelerate and de-risk the delivery of this value."

BG was trading nearly 38% higher at 1,252.16p by 09:22.

The following is a chart showing BG's stock price for approximately the last 10 years up to Tuesday's close:

M&A fever

The deal sparked speculation that it may mark the start of a new round of industry consolidation, not seen since the late 1990s, as business adapt to the new norm of depressed crude prices.

Smaller producers such as BG Group have dropped sharply over the past year - down around 30% before this week - with oil having halved in price, while big oil names such as Shell and BP have posted only moderate falls.

Accendo Markets trader Marc Kimsey said the moves have left the larger companies "in the position of predator rather than prey".

Similarly, Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said: "The deal could […] prompt other companies who have been running the slide rule over potential targets to make their move.”

Tullow Oil jumped nearly 10% on the news, while Afren surged 3%, Ophir Energy gained 7% and Genel Energy advanced 8%.