You could be forgiven for assuming that in the face of a global meltdown in oil prices, any planned merger between energy companies would be put on hold. Yet it’s now looking as if a takeover announced last April will be going ahead – despite the global oil markets taking a significant turn for the worse since that announcement.

Shareholders from both companies voted on the deal this week; seeing as most of the major stock-holders had already lined up behind the deal, the vote appeared to be little more than a formality.


Are Energy Firms Safer Together?

Actually, from a traditional point of view the current oil crisis is exactly the time for a merger, allowing the combined strength of the two companies to weather the storm. A bull market for oil which was to last for a decade began in late 1998, but in the years immediately prior it was not unheard of to hear discussions about the possibility of $5 oil. Fearing the worst, oil companies clustered together for maximum firepower, most notably in the case of BP’s takeover of Amoco and the mega-merger between Exxon and Mobil (which was completed in 1999 but began in 1998).


Changed Circumstances: Same Deal

However, there is considerable scepticism from some quarters concerning the deal, much of it centred on the fact that the takeover was proposed at a time when oil was worth around double what it is today. Were Shell only to be offering takeover terms to the BG Group at this point in time, there is little question that they would not be offering nearly as much as the price agreed upon nine months ago and agreed upon this week. Given that this is the case, the response by shareholders of Shell has been remarkably subdued – only one major player, the investment fund Standard Life, publicly spoke up against the deal. Of course, it’s not impossible that there may be major investors in both firms who reckon that losses on one side will be balanced out by gains from the other side.

It certainly looks as if Shell will now be significantly overpaying for the BG Group. But the deal, it would seem, is to go ahead - Wednesday’s vote unblocked the last major obstacle - if for no other reason than it is the brainchild of Shell CEO Ben Van Beurden.


Shell’s share price has seen something close to a 40% drop in value on where it was a year ago. It remains to be seen whether the newly merged company will see a change in fortunes – a question which could equally be asked of the oil and energy industry as a whole.