REG-Royal Dutch Shell: Recommended Cash & Share Offer for BG Group by Shell PLC <Origin Href="QuoteRef">RDSa.L</Origin> - Part 4
08/04/2015 07:22
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administrative, organisational and IT operational efficiencies:
$870 million from the de-duplication of overlapping back office and
business support functions, the elimination of overlapping support costs,
office consolidation, the migration of BG onto Shell IT systems, and
removal of duplicative corporate costs;
* Efficiencies in operated procurement spend ($90 million), and marketing and
shipping costs ($50 million): $140 million from economies of scale in
addressable operating, capital and raw material cost areas and optimisation
of shipping and marketing; and
* Reduction in exploration expenditure: $1.5 billion from the reduction in
exploration expenditure enabled by high-grading and optimisation of the
combined exploration portfolio.
The Shell Directors expect that these synergies would be delivered
progressively, and anticipate that 50% on a run rate basis would be achieved by
the end of 2016, 80% by the end of 2017, and the full run-rate in 2018.
Aside from the one-off costs referred to in the statement above, the Shell
Directors do not expect any material dis-synergies to arise in connection with
the Combination.
Bases of belief
In preparing the Quantified Financial Benefits Statement, BG has provided Shell
with certain operating and financial information to facilitate a detailed
analysis in support of evaluating the potential synergies available from the
Combination. In circumstances where data has been limited for commercial or
other reasons, the team has made estimates and assumptions to aid its
development of individual synergy initiatives.
The cost base used as the basis for the quantified exercise is that contained
in BG's 2014 Annual Report and Accounts.
The assessment and quantification of the potential synergies have in turn been
informed by Shell management's industry experience as well as their experience
of executing and integrating past acquisitions.
In arriving at the estimate of synergies set out in this Announcement,
following discussions with BG, the Shell Directors made the following
operational assumptions:
* as regards headcount, Shell has assumed salary levels proportional to
Shell's own salaries by grade, aligned to BG reported employee expenditure;
* as regards IT costs, Shell anticipates transitioning BG support function
activities (such as Finance, HR etc.) onto Shell's existing systems and
legacy BG support function systems will cease to be used. Project IT,
infrastructure and certain enterprise resource planning systems are assumed
to be at least partially integrated into Shell;
* as regards synergies targeting procurement expenditure for operating
assets, these are based on scale reductions in operating and capital
expenditure forecasts informed by third party analysts data;
* as regards synergies targeting shipping and marketing, these are based on
scale efficiencies across global marketing and shipping operations of the
Combined Group; and
* the targeted operating cost savings synergies assume inflation at 2% per
annum; exploration expenditure savings do not include inflation.
The Shell Directors have, in addition, assumed that:
* the Combination will be completed in the first quarter of 2016 for these
purposes;
* following completion of the transaction, Shell will own 100% of the
ordinary share capital of BG;
* there will be no significant impact on the underlying operations of either
company or their ability to continue to conduct their businesses;
* there will be no material change to macroeconomic, political or legal
conditions in the markets or regions in which Shell and BG operate that
materially impact on the implementation or costs to achieve the proposed
cost savings;
* there will be no material change in current foreign exchange rates; and
* there will be no change in tax legislation or tax rates in the countries in
which Shell and BG operate that could materially impact the ability to
achieve any benefits.
The Shell Directors consider that the expected benefits will accrue as a direct
result of the Combination and could not be achieved independently of the
Combination.
Reports
As required by Rule 28.1(a) of the City Code, Deloitte LLP, as reporting
accountants to Shell, and Bank of America Merrill Lynch, financial adviser to
Shell, have provided the opinions required under that Rule. Each of Deloitte
LLP and Bank of America Merrill Lynch has given and has not withdrawn its
consent to the publication of its report in the form and context in which it is
included.
Notes:
1. The statements of estimated synergies relate to future actions and
circumstances which, by their nature, involve risks, uncertainties and
contingencies. As a result, the synergies referred to may not be achieved, or
may be achieved later or sooner than estimated, or those achieved could be
materially different from those estimated.
2. Due to the scale of the Combined Group, there may be additional changes to
the Combined Group's operations. As a result, and given the fact that the
changes relate to the future, the resulting synergies may be materially greater
or less than those estimated.
3. No statement should be construed as a profit forecast or interpreted to mean
that the combined group's earnings in the first full year following
implementation of the Combination, or in any subsequent period, would
necessarily match or be greater than or be less than those of Shell and/or BG
for the relevant preceding financial period or any other period.
Part B
Report from Deloitte LLP
The Directors
on behalf of Royal Dutch Shell plc
Carel van Bylandtlaan 16
2596 HR The Hague
Netherlands
Merrill Lynch International
Merrill Lynch Financial Centre
2 King Edward Street
London EC1A 1HQ
8 April 2015
Dear Sirs
FIRM INTENTION TO MAKE AN OFFER FOR BG Group PLC (THE "TARGET") BY ROYAL DUTCH
SHELL PLC ("SHELL")
We report on the statement made by the directors of Shell (the "Directors") of
synergy benefits set out in Part A of Appendix 5 to the announcement (the "
Announcement") issued by Shell (the "Quantified Financial Benefits Statement"
or "the Statement"). The Statement has been made in the context of the
disclosures within Part A of Appendix 5 setting out, inter alia, the basis of
the Directors' belief (identifying the principal assumptions and sources of
information) supporting the Statement and their analysis, explanation and
quantification of the constituent elements.
Responsibilities
It is the responsibility of the Directors to prepare the Statement in
accordance with Rule 28 of the City Code on Takeovers and Mergers (the "City
Code").
It is our responsibility to form our opinion, as required by Rule 28.1(a) of
the City Code, as to whether the Statement has been properly compiled on the
basis stated.
This report is given solely for the purposes of complying with Rule 28.1(a)(i)
of the City Code and for no other purpose. Therefore to the fullest extent
permitted by law we do not assume any other responsibility to any person for
any loss suffered by any such person as a result of, arising out of, or in
connection with this report or our statement consenting to its inclusion in the
Announcement, which are required by Rule 28.1(a)(i) and Rule 23.3 of the City
Code respectively.
Basis of opinion
We conducted our work in accordance with the Standards for Investment Reporting
issued by the Auditing Practices Board in the United Kingdom.
Our work included considering whether the Statement has been accurately
computed based upon the disclosed bases of belief (including the principal
assumptions). Whilst the bases of belief (and the principal assumptions) upon
which the Statement is based are solely the responsibility of the Directors, we
considered whether anything came to our attention to indicate that any of the
bases of belief (or principal assumptions) adopted by the Directors which, in
our opinion, are necessary for a proper understanding of the Statement have not
been disclosed or if any basis of belief (or principal assumption) made by the
Directors appears to us to be unrealistic. Our work did not involve any
independent examination of any of the financial or other information underlying
the Statement.
We planned and performed our work so as to obtain the information and
explanations we considered necessary in order to provide us with reasonable
assurance that the Quantified Financial Benefits Statement has been properly
compiled on the basis stated.
Since the Statement (and the principal assumptions on which it is based)
relates to the future, the actual synergy benefits achieved are likely to be
different from those anticipated in the Statement and the differences may be
material. Accordingly, we can express no opinion as to the achievability of the
synergy benefits identified by the Directors in the Statement.
Our work has not been carried out in accordance with auditing or other
standards and practices generally accepted in jurisdictions outside the United
Kingdom, including the United States of America, and accordingly should not be
relied upon as if it had been carried out in accordance with those standards
and practices. We therefore accept no responsibility and deny any liability to
any person using this report in connection with an offering of securities who
makes a claim on the basis they had acted in reliance on the protections
afforded by United States of America law and regulation.
Opinion
In our opinion, based on the foregoing, the Quantified Financial Benefits
Statement has been properly compiled on the basis stated.
Yours faithfully
Deloitte LLP
Chartered Accountants
Deloitte LLP is a limited liability partnership registered in England and Wales
with registered number OC303675 and its registered office at 2 New Street
Square, London EC4A 3BZ, United Kingdom. Deloitte LLP is the United Kingdom
member firm of Deloitte Touche Tohmatsu Limited ("DTTL"), a UK private company
limited by guarantee, whose member firms are legally separate and independent
entities. Please see www.deloitte.co.uk/about for a detailed description of the
legal structure of DTTL and its member firms.
Part C
Report from Merrill Lynch International
The Board of Directors
Carel van Bylandtlaan 16
2596 HR The Hague
Netherlands
8 April 2015
Dear Sirs,
Firm intention to make an offer for BG Group plc by Royal Dutch Shell plc ("
Shell")
We refer to the Quantified Financial Benefits Statement, the bases of belief
thereof and the notes thereto (together, the "Statement") as set out in Part A
of Appendix 5 of this Announcement, for which the Board of Directors of Shell
(the "Directors") are solely responsible under Rule 28 of the City Code on
Takeovers and Mergers (the "Code").
We have discussed the Statement (including the assumptions and sources of
information referred to therein), with the Directors and those officers and
employees of Shell who developed the underlying plans. The Statement is subject
to uncertainty as described in this Announcement and our work did not involve
an independent examination of any of the financial or other information
underlying the Statement.
We have relied upon the accuracy and completeness of all the financial and
other information provided to us by, or on behalf of, Shell, or otherwise
discussed with or reviewed by us, and we have assumed such accuracy and
completeness for the purposes of providing this letter.
We do not express any opinion as to the achievability of the quantified
financial benefits identified by the Directors.
We have also reviewed the work carried out by Deloitte LLP and have discussed
with them the opinion set out in Part B of Appendix 5 of this Announcement
addressed to yourselves and ourselves on this matter.
This letter is provided to you solely in connection with Rule 28.1(a)(ii) of
the Code and for no other purpose. We accept no responsibility to Shell or its
shareholders or any person other than the Directors in respect of the contents
of this letter; no person other than the Directors can rely on the contents of
this letter, and to the fullest extent permitted by law, we exclude all
liability (whether in contract, tort or otherwise) to any other person, in
respect of this letter, its results, or the work undertaken in connection with
this letter, or any of the results that can be derived from this letter or any
written or oral information provided in connection with this letter, and any
such liability is expressly disclaimed except to the extent that such liability
cannot be excluded by law.
On the basis of the foregoing, we consider that the Statement, for which you as
the Directors are solely responsible, has been prepared with due care and
consideration.
Yours faithfully,
Merrill Lynch International
APPENDIX 6
DEFINITIONS
"ACCC" Australian Competition and Consumer
Commission
"Announcement" this Announcement made pursuant to Rule 2.7
of the City Code
"Anti-Monopoly Law" the Anti-Monopoly Law of the People's
Republic of China
"Authorisations" for the purposes of the Conditions, means
authorisations, orders, grants, recognitions,
determinations, confirmations, consents,
licences, clearances, permissions, exemptions
and approvals
"Bank of America Merrill Lynch" Merrill Lynch International, a subsidiary of
Bank of America Corporation
"BG" BG Group plc, incorporated in England and
Wales with registered number 03690065
"BG ADRs" American Depositary Receipts, each evidencing
a BG American Depositary Share, which
represents one BG Share
"BG Board" the BG Directors collectively
"BG Depositary" the depositary from time to time for the BG
ADRs pursuant to a deposit agreement between
it, BG and the holders and beneficial owners
of BG ADRs
"BG Directors" the directors of BG as at the date of this
Announcement or, where the context so
requires, the directors of BG from time to
time
"BG General Meeting" the general meeting of BG Shareholders to be
convened to consider and if thought fit pass,
inter alia, a special resolution in relation
to the Combination
"BG Group" BG and its Subsidiaries and subsidiary
undertakings
"BG Meetings" the Court Meeting and the BG General Meeting
"BG Shareholders" the holders of BG Shares
"BG Share Plans" the BG Long-Term Incentive Plan 2008
(including the BG Deferred Bonus Plan 2008
and the BG Voluntary Bonus Deferral Plan),
the BG Sharesave Plan 2008, the BG Company
Share Option Scheme, the BG Share Award Plan,
the BG Share Incentive Plan 2008 and the BG
Global Partnership Plan
"BG Shares" BG ordinary shares of 10 pence each
"boe(pd)" barrels of oil equivalent (per day)
"Break Payment Event" as defined in paragraph 17 of this
Announcement
"Business Day" a day (other than a Saturday, Sunday, public
or bank holiday) on which banks are generally
open for business in London, other than
solely for trading and settlement in Euro
"CADE" Brazil's Council for Economic Defence
"CCS" current cost of supply
"Circular" the circular to be sent by Shell to Shell
Shareholders summarising the background to
and reasons for the Combination which will
include a notice convening the Shell General
Meeting
"City Code" the City Code on Takeovers and Mergers
"Closing Price" the closing middle market quotations of a
share derived from the Daily Official List of
the London Stock Exchange
"CMA" UK Competition and Markets Authority
"Combination" the proposed acquisition of the entire issued
and to be issued share capital of BG by
Shell, to be effected by the Scheme as
described in this document (or by the Offer
under certain circumstances described in this
document)
"Combined Group" the enlarged group following the Combination,
comprising the Shell Group and the BG Group
"Conditions" the conditions to the implementation of the
Combination set out in Part A of Appendix 2
to this Announcement and to be set out in the
Scheme Document
"Consideration" the consideration payable to BG Shareholders
in connection with the Combination comprising
a cash component of 383 pence per BG Share
and a share component of 0.4454 New Shell
Shares per BG Share
"Co-operation Agreement" the agreement dated 8 April 2015 between
Shell and BG and relating, among other
things, to the implementation of the
Combination
"Court" the High Court of Justice in England and
Wales
"Court Meeting" the meeting of the BG Shareholders to be
convened by order of the Court pursuant to
section 896 of the Companies Act 2006 for the
purpose of considering and, if thought fit,
approving the Scheme (with or without
amendment) and any adjournment, postponement
or reconvention thereof
"CREST" the relevant system (as defined in the
Uncertificated Securities Regulations 2001
(SI 2001/3755)) in respect of which Euroclear
UK & Ireland Limited is the Operator (as
defined in the Regulations)
"Deloitte LLP" Deloitte LLP, the United Kingdom member firm
of Deloitte Touche Tohmatsu Limited, a UK
private company limited by guarantee, whose
member firms are legally separate and
independent entities
"Disclosed" the information fairly disclosed by, or on
behalf of BG: (i) in the Annual Report and
Accounts of the BG Group for the financial
year ended 31 December 2014; (ii) in this
Announcement; (iii) in any other public
announcement made by BG in accordance with
the Listing Rules, Disclosure Rules or
Transparency Rules after 31 December 2014; or
(iv) as disclosed in writing prior to the
date of this Announcement by or on behalf of
BG to Shell (or its respective officers,
employees, agents or advisers in their
capacity as such)
"Dutch Revenue Service" the Dutch Revenue Service (Belastingdienst),
a unit governed by the Dutch Ministry of
Finance (Ministerie van Financiën) competent
to impose and collect Dutch income tax
(inkomstenbelasting), Dutch corporate income
tax (vennootschapsbelasting) and
miscellaneous other Dutch taxes
"Effective Date" the date on which:
(a) the Scheme becomes effective in
accordance with its terms; or
(b) if Shell elects to implement the
Combination by way of an Offer, the date the
Offer becomes or is declared unconditional in
all respects
"EFTA" the European Free Trade Association
"EU" or "European Union" an economic and political union of 28 member
states which are located primarily in Europe
"Euronext Amsterdam" Euronext in Amsterdam, a regulated market of
Euronext Amsterdam N.V.
"FATA" the Australian Foreign Acquisitions and
Takeovers Act 1975 (Cth)
"FCA" the Financial Conduct Authority
"kboe(pd)" thousand barrels of oil equivalent (per day)
"Listing Rules" the rules and regulations made by the FCA
pursuant to Part 6 of the Financial Services
and Markets Act 2000 and contained in the
FCA's publication of the same name
"LNG" liquefied natural gas
"London Stock Exchange" London Stock Exchange plc
"Long Stop Date" 31 July 2016 or such later date as may be
agreed in writing by BG and Shell (with the
Panel's consent and as the Court may approve
(if such approval is required))
"mboe" million barrels of oil equivalent
"Mix and Match Facility" the mix and match facility under which BG
Shareholders may, subject to countervailing
elections made by other BG Shareholders,
elect to vary the proportion of New Shell
Shares and cash received under the terms of
the Combination
"MOFCOM" the Ministry of Commerce of the People's
Republic of China
"mtpa" million tonnes per annum
"New Shell Shares" the Shell B Shares to be issued and, subject
to a valid election to that effect by a BG
Shareholder (or if it is no longer possible
to issue Shell B Shares and subject to
paragraphs 13, 17 and 27 of this Announcement
and the provisions of the Co-operation
Agreement) the Shell A Shares to be issued
pursuant to the Combination
"Offer" should the Combination be implemented by way
of a takeover offer as defined in Chapter 3
of Part 28 of the Companies Act 2006 in the
circumstances described in this Announcement,
the offer to be made by or on behalf of Shell
to acquire the entire issued and to be issued
share capital of BG and, where the context
admits, any subsequent revision, variation,
extension or renewal of such offer
"Offer Document" should the Combination be implemented by
means of the Offer, the document to be sent
to BG Shareholders which will contain, inter
alia, the terms and conditions of the Offer
"Offer Period" the period commencing on 7 April 2015 and
ending on: (i) the earlier of the date on
which the Scheme becomes effective and/or the
date on which the Scheme lapses or is
withdrawn (or such other date as the Panel
may decide); or (ii) the earlier of the date
on which the Offer has become or has been
declared unconditional as to acceptances and/
or the date on which the Offer lapses or is
withdrawn (or such other date as the Panel
may decide), in each case other than where
such lapsing or withdrawal is a result of
Shell exercising its right to implement the
Combination by way of an Offer or a Scheme
(as appropriate)
"Official List" the official list maintained by the UK
Listing Authority
"Opening Position Disclosure" an announcement containing details of
interests or short positions in, or rights to
subscribe for, any relevant securities of a
party to the offer if the person concerned
has such a position
"Overseas Shareholders" Scheme Shareholders who are resident in,
ordinarily resident in, or citizens of,
jurisdictions outside the United Kingdom
"Panel" the Panel on Takeovers and Mergers
"Pre-Conditions" the pre-conditions to the Combination, as set
out in Appendix 1 to this Announcement
"PRMS" Petroleum Resources Management System
"Prospectus" the prospectus document to be published by
Shell at the same time as the Scheme Document
in respect of the New Shell Shares to be
issued to BG Shareholders in connection with
the Combination and for the purpose of
admission of the New Shell Shares to the
Official List and to Euronext Amsterdam
"Quantified Financial Benefits as defined in Part A of Appendix 5 to this
Statement" Announcement
"Regulation" Council Regulation (EC) 139/2004 (as amended)
"Regulatory Conditions" the Conditions set out in paragraphs (b) to
(k) (inclusive) of Part A of Appendix 2 (so
far as, in the case of the Conditions set out
in paragraphs (i), (j) and (k) of Part A of
Appendix 2, the relevant Third Party under
those Conditions is a Relevant Authority, as
defined in the Co-operation Agreement)
"Restricted Jurisdiction" any jurisdiction where local laws or
regulations may result in a significant risk
of civil, regulatory or criminal exposure if
information concerning the Combination is
sent or made available to BG Shareholders in
that jurisdiction
"Scheme" the proposed scheme of arrangement under Part
26 of the Companies Act 2006 between BG and
BG Shareholders to implement the Combination
with or subject to any modification, addition
or condition approved or imposed by the Court
"Scheme Court Hearing" the hearing of the Court to sanction the
Scheme under section 899 of the Companies Act
2006
"Scheme Court Order" the order of the Court sanctioning the Scheme
under section 899 of the Companies Act 2006
"Scheme Document" the document to be dispatched to BG
Shareholders including the particulars
required by section 897 of the Companies Act
2006
"Scheme Record Time" the time and date specified as such in the
Scheme Document or such later time as BG and
Shell may agree
"Scheme Shareholder" holders of Scheme Shares
"Scheme Shares" 1. the BG Shares in issue at the date of the
Scheme Document;
2. any BG Shares issued after the date of
the Scheme Document and prior to the
Voting Record Time; and
3. any BG Shares issued at or after the
Voting Record Time and prior to the
Scheme Record Time in respect of which
the original or any subsequent holder
thereof is bound by the Scheme, or shall
by such time have agreed in writing to be
bound by the Scheme,
in each case excluding any BG Shares held in
treasury
"SEC" the US Securities and Exchange Commission
"Shell" Royal Dutch Shell plc, incorporated in
England and Wales with registered number
04366849
"Shell A Shares" Shell A ordinary shares of €0.07 each
"Shell B Shares" Shell B ordinary shares of €0.07 each
"Shell Board" the Shell Directors collectively
"Shell Directors" the directors of Shell as at the date of this
Announcement or, where the context so
requires, the directors of Shell from time to
time
"Shell General Meeting" the general meeting of Shell to be convened
in connection with the Combination, notice of
which will be sent to the Shell Shareholders,
including any adjournment thereof
"Shell Group" Shell and its Subsidiaries and subsidiary
undertakings
"Shell Resolutions" the ordinary shareholder resolutions of Shell
to approve, effect and implement the
Combination and to grant authority to the
Shell Directors to allot the New Shell Shares
"Shell Shareholders" holders of Shell A Shares or Shell B Shares
"Shell Transport" The Shell Transport and Trading Company
Limited
"Subsidiary" has the meaning given in section 1159 of the
Companies Act 2006
"subsidiary undertaking" has the meaning given in section 1162 of the
Companies Act 2006
"UK" or "United Kingdom" the United Kingdom of Great Britain and
Northern Ireland
"UK Listing Authority" the FCA acting in its capacity as the
authority for listing in the UK
"US" or "United States" the United States of America, its territories
and possessions, any state of the United
States of America and the District of
Columbia
"US Exchange Act" the US Securities Exchange Act of 1934, as
amended
"US Securities Act" the US Securities Act of 1933, as amended
"Voting Record Time" 6.00 p.m. on the day which is two days prior
to the date of the Court Meeting or any
adjournment thereof (as the case may be)
"Wider BG Group" has the meaning given in Appendix 2
"Wider Shell Group" has the meaning given in Appendix 2
All times referred to are London time unless otherwise stated.
All references to "GBP", "pence", "sterling" or "£" are to the lawful currency
of the United Kingdom.
All references to "Euro" or "€" are to the lawful currency of the European
Union.
All references to "US dollar", "USD", "US$" or "cents", are to the lawful
currency of the United States.
All references to statutory provision or law or to any order or regulation
shall be construed as a reference to that provision, law, order or regulation
as extended, modified, replaced or re-enacted from time to time and all
statutory instruments, regulations and orders from time to time made thereunder
or deriving validity therefrom.
END
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