Sunday telephone call sparked $70 billion Shell-BG deal

By Dmitry Zhdannikov and Karolin Schaps

LONDON (Reuters) – Sometimes it takes little more than five people to put together a $70 billion oil mega-merger.

Shell’s purchase of smaller rival BG, the third largest oil and gas merger ever, was prompted by a phone call on a Sunday in the middle of March between Shell’s ambitious and acquisitive CEO Ben Van Beurden and BG’s veteran chairman Andrew Gould.

Helping to make it happen were three bankers who have advised on some of the oil industry’s biggest takeovers — Alastair Maxwell from Goldman Sachs, Julian Mylchreest from Bank of America Merrill Lynch and former Morgan Stanley star deal maker Simon Robey, now with his own boutique firm Robey Warshaw.

That contrasts with smaller deals which would normally require a small army of bankers and advisers on both sides. It also shows that big mergers can be done at a lightning speed by senior executives with big ambitions.

Less than two months ago, Goldman’s Maxwell played down the prospect of mega-mergers as oil majors were more focused on cost cutting and maintaining dividends.

By March, he was advising BG on the deal together with Robey Warshaw. BAML is the sole adviser to Shell.

Explaining how the deal came together in under a month, Van Beurden said on Wednesday: “I called Andrew (Gould) up and we had a very good and constructive discussion about the idea and it very quickly seemed to make sense to both of us”.

That first call was made on March 15.

“What has happened in the last month, apart from it being a logical deal it has also become a very compelling deal from a value perspective,” Van Beurden said.

“NEW SHELL”

Both Van Beurden and Gould promised to turn companies around since taking on their roles in 2014 and 2011 respectively.

The difference though is that for Van Beurden, 56, the promise signaled a start of what will probably be a long haul. For Gould, 68, the deal with Shell is likely to be a final “Big Bang” project before retirement, according to banking and industry sources.

Gould worked as CEO of oil services giant Schlumberger in 2003-2011 and last year he hired Helge Lund as BG’s CEO from rival Statoil.

“The deal was Shell-driven. It was all about “New Shell” and the repositioning of Shell,” a source familiar with the deal said on condition of anonymity because he isn’t allowed to speak publicly to the press.

He said Shell first made an approach to BG and only at that point did it contact advisers: “Unlike a merger of equals, this was not a slow dance… The issue wasn’t who got what job, very much about the financial terms”.

On Wednesday Gould said Lund will “probably move along” following the merger, expected to close in early 2016. The merger could trigger payouts to Lund of as much as $47.8 million for his first year at BG.

SHELL CATCHES UP

BG with its huge and costly projects in Kazakhstan, Brazil, Australia and East African has been rumored to be up for sale for over a decade with Shell and rival U.S. giant ExxonMobil being named as potential contenders.

The Shell-BG deal will create a company which by 2018 will produce more oil and gas than Exxon, currently the world’s top listed oil company, according to analysts from Jefferies.

It also signals a possible return of a mega-mergers frenzy unseen since the turn of the century when an oil price crash triggered a wave of deals in which BP bought Amoco and Arco, Exxon bought Mobil and Chevron bought Texaco.

“Most mega-mergers of the early 2000s were done by very ambitious, relatively young and long-tenure CEOs,” said a banker from a major Wall Street bank not involved in the deal.

He said one of the reasons while the mega-mergers were not repeated when oil prices crashed again in 2008 was a shortage of such CEOs and a rapid oil price recovery that followed in 2009.

“Shell missed out on the late 1990s mega-merger wave due to their complex shareholding structure,” said Christian Stadler, of Warwick Business School, something that was resolved with a reorganization in 2005.

BAML’s Mylchreest, who previously worked for Citibank, was among those advising Shell on its structure review over a decade ago.

Robey and Maxwell worked for the famous Morgan Stanley M&A team, which advised BP on its acquisitions of Amoco and Arco, deals that have helped to define the industry.

(Additional reporting by Alexander Smith; Editing by Keith Weir)