Shell’s takeover of BG “good” for income investors

Petrol pumpsShell will not change its dividend policy in light of its £47 billion (€64 billion) takeover of BG Group, but the deal will cause Shell some “indigestion”. Fund managers have broadly welcomed the deal between the two oil major’s and the deal is seen in light of the depressed oil price. Michael Clark, portfolio manager of the Fidelity MoneyBuilder Dividend Fund, says: “It’s a good deal for BG shareholders, clearly, but also good for shareholders in Royal Dutch Shell. There is no danger that Shell will change its dividend policy.” He says Shell gains first-class assets, which BG had been unable to develop smoothly, and also gains a presence off the coast of Brazil, taking away its requirement to make large discoveries to offset natural depletion. Pascal Menges, manager of the Lombard Odier Global Energy Fund, says the deal is a sign of a flawed growth strategy in the oil industry. “This shows that Big Oil’s growth strategy over the last ten years is bust. Having bet enormous sums on eye-wateringly expensive oil production from oil sands, ultra-deep water and arctic fields the super-majors are now ill-placed to cope with a low oil price.” He says Shell’s purchase of BG Group heralds a “scrabble” by big oil to improve the overall quality of their portfolios and that the companies could have done this when the oil price was low in the early 2000s, but “sat on their hands” instead. The access to Brazil’s vast Santos Basin comes at a heft price, says Menges, and management will have their work cut out to execute the deal. Menges adds: “The risk of indigestion is not small.” Ian Forrest, investment research analyst at The Share Centre, a UK share service for private investors, says: ““The deal looks attractive for investors, especially those seeking a higher level of income. It offers a mixture of cash and shares which value each BG share at £13.67, based on yesterday’s closing price. “This makes for a premium of 50%, a level not seen for over a year.” ©2015 funds euorpe

Executive Interviews

INTERVIEW: Put your money where your mouth is

Jun 10, 2016

At Kempen Capital Management, they believe portfolio managers should invest in their own funds. David Stevenson talks to Lars Dijkstra, CIO of the €42 billion manager.

EXECUTIVE INTERVIEW: ‘Volatility is the name of the game’

May 13, 2016

Axa Investment Managers chief executive officer, Andrea Rossi, talks to David Stevenson about bringing all his firm’s subsidiaries under one name and the opportunities that a difficult market...


ROUNDTABLE: Beyond the hype

Oct 13, 2016

The use of smart beta investing continues to grow. Our panel, made up of both providers and users, discusses what the strategy actually means, how it should be used and the kind of pitfalls that may arise when using this innovative investment technique.

MIFID II ROUNDTABLE: Following the direction of travel

Sep 07, 2016

Fund management firms Aberdeen and HSBC Global meet with specialist providers to speak about how the industry is evolving towards MiFID II.