Russell: Shell-BG Deal May Be End Point Rather Than Harbinger

Russell: Shell-BG Deal May Be End Point Rather Than Harbinger
There is a widespread assumption that weak commodity prices are likely to spark a wave of merger and acquisition activity as stronger companies seek to buy assets on the cheap.

Reuters

KUALA LUMPUR, May 19 (Reuters) - There is a widespread assumption that weak commodity prices are likely to spark a wave of merger and acquisition activity as stronger companies seek to buy assets on the cheap.

The $70 billion buyout of BG Plc by larger rival Royal Dutch Shell is generally viewed by investors and analysts as the first big deal in a likely series of major mergers and acquisitions in the resource sector.

After all, the last time commodity prices fell sharply, around 15 years ago, there was a rash of mega-mergers, such as Exxon with Mobil and Conoco with Phillips in the energy space, and BHP with Billiton and Rio Tinto's purchase of Alcan.

Notwithstanding the Shell-BG deal, it appears executives may be more cautious this time around, eschewing mega-mergers in favour of smaller acquisitions and in-house projects to add shareholder value.

Ryan Lance, the chief executive of ConocoPhillips, was adamant that he didn't expect a "big M&A wave any time soon".

Speaking at the Asia Oil & Gas Conference in Kuala Lumpur on Monday, Lance said the rationale that drove the previous round of major deals doesn't quite apply any more.

Why would a giant international energy or resource company want to go down the M&A route currently?


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