Merger Will See 10,000 Jobs Cut at Shell, BG
Royal Dutch Shell plc’s proposed takeover of BG Group plc will be completed “in a matter of weeks”, according to Shell CEO Ben van Beurden, resulting in the reduction of a total of 10,000 workers across both companies.
In a trading update on the company’s website, the Shell CEO stated that the completion of the BG transaction “will mark the start of a new chapter in Shell, to rejuvenate the company, and improve shareholder returns”. The announcement was echoed by BG Group, which suggested in a separate statement that the deal was moving ahead as planned.
The merger, which is worth approximately $49 billion in today’s oil price environment, was cast into doubt earlier this month when one of Shell’s major shareholders revealed January 13 that it would be voting against the transaction due to its “destructive” nature.
Commenting on the deal, David Cumming, head of equities at Standard Life Investments, said in a company statement:
"We have concluded that the proposed terms of the acquisition of BG are value destructive for Shell shareholders. This view is based on the downside risks to Shell’s oil price assumptions plus the tax and operational risks surrounding BG’s Brazilian asset base. Consequently we shall vote against the deal."
The transaction, along with other cost-cutting measures, will result in a total of around 10,000 staff and direct contractor position cuts in 2015/16 across both companies, as Shell and BG’s streamlining and integration processes continue. Shell’s operating costs reduced by $4 billion, or around 10 percent in 2015, and the company expects its costs to fall by a further $3 billion next year. Shell's capital investment in 2015 is expected to be $29 billion, an $8 billion, or over 20 percent, reduction from 2014 levels. BG Group announced last year that its 2015 cost and efficiency program was on track to deliver “at least” $300 million in savings.
Combined 2016 capital investment for Shell and BG is currently expected to be $33 billion, which is around a 45 percent reduction from combined spending, which peaked in 2013. Warning of even more cost-cutting measures should the oil price continue to decline, Beurden stated that “flexibility for further reductions is available and will be utilized should conditions warrant that.”
The Shell-BG merger received unconditional clearance from the Chinese Ministry of Commerce (MOFCOM) last month, marking the final pre-conditional approval required for the deal. Shareholders of both companies will vote on the transaction Jan. 27 and 28.
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