China gives go ahead to Shell merger with BG Group

The £40bn deal will accelerate its growth in global LNG and deep water

Shell has received clearance from the Chinese Ministry of Commerce for its takeover of oil and natural gas company BG Group in a £40 billion merger deal.

The announcement marks the final hurdle required for the merger following previous approvals in Brazil, the EU and Australia.

The takeover will create one of Britain's biggest public companies, which Shell has said will result in BG shareholders owning approximately 19% of the combined group.

Shell expects the combination to accelerate its growth strategy in global LNG and deep water and will add some 25% to Shell’s proved oil and gas reserves. It will also see an 20% increase to production and provide Shell with enhanced positions in competitive new oil and gas projects, particularly in Australia LNG and Brazil deep water.

Ben van Beurden, chief executive of Shell said that the transaction fits with the company's strategy and 'read' on the industry landscape, which at the start of 2014 saw Shell embark on an “improvement programme”, including divestments and the restructuring of underperforming businesses.

Beurden said: “BG will accelerate Shell’s financial growth strategy, particularly in deep water and liquefied natural gas: two of Shell's growth priorities and areas where the company is already one of the industry leaders. Furthermore, the addition of BG's competitive natural gas positions makes strategic sense, ahead of the long-term growth in demand we see for this cleaner-burning fuel.

“This transaction will be a springboard for a faster rate of portfolio change, particularly in exploration and other long term plays. We will be concentrating on fewer themes, and at a larger scale, to drive profitability and balance risk, and unlock more value from the combined portfolios. Over time, the combination will enhance our free cash flow potential, and our capacity to undertake share buybacks, where I expect to see a substantial increase in pace.”

Helge Lund, chief executive of BG, said: “The offer from Shell delivers attractive returns to shareholders and has strong strategic logic. BG’s deep water positions and strengths in exploration, liquefaction and LNG shipping and marketing will combine well with Shell’s scale, development expertise and financial strength.

"The consolidated business will be strongly placed to develop the growth projects in BG’s portfolio. The transaction will take time to complete, during which my team and I will remain committed to BG and our shareholders, and to safely delivering our 2015 business plan.”

Shareholders at the two companies will now decide whether the merger will move forward, with the deal potentially set to be tied up in early 2016.