Standard Life says it will vote against Shell BG tie-up

Shell sign Image copyright Getty Images

A key investor in Royal Dutch Shell has said the oil company's proposed takeover of BG Group does not work at current oil prices.

David Cumming, head of equities at Standard Life, said oil needed to be over $60 rather than the current $33.

He said the fund manager would oppose the deal when it goes to a shareholder vote later this month.

But Shell has said it remains confident of winning the vote.

A Shell spokesman said: "We continue to believe we have the broad base of shareholder support we need for the deal to complete."

Shares in Shell fell 0.8% to £13.64 when the FTSE started trading on Monday, while BG dropped 1.3% to £9.27.

'Negative' changes

The firm announced its intention to buy BG - an oil and gas exploration company - in April 2015 for £47bn.

But Mr Cumming said that the risk of further oil price falls and financial risks connected to BG's Brazilian assets make the deal undesirable.

"The problem we have with the deal is that a lot's changed since the bid was announced in April last year - all of it negative," he told the BBC's Today programme.

"The current oil price is $33 and Shell still needs an oil price well over $60 to make it work financially," he said on Monday.

'Good job'

Shell and BG shareholders will vote at separate meetings on 27 and 28 January respectively.

Mr Cumming said Standard Life would not want to see Shell chief executive Ben van Beurden forced out if the deal failed.

"He's doing a good job in our view. It's just the deal we don't like. We have to put financial logic above management loyalty in this instance, and we would recommend other shareholders do the same," Mr Cumming said.

Standard Life is the 11th largest holder of Shell's B shares, with a 1.7% stake.

Shell B shares make up the share component in the cash-and-share deal that is expected to be completed on 15 February.

Standard Life is also the 16th biggest shareholder in BG, according to data from Bloomberg.

Support for deal

Shell has won the support of Institutional Shareholder Services (ISS), an influential advisory firm, which recommended on Friday that Shell shareholders support the deal.

Another influential advisory group, Glass Lewis, also issued its guidance late on Friday, joining ISS in advising shareholders to vote in favour.

ISS, which advises about 5% of Shell's medium and small shareholders, said it supported the deal "given the compelling strategic rationale, and the significant positive economics to be realised within a relatively short time frame".

Glass Lewis, which says it advises 12 of Shell's top 50 shareholders, said the deal "could lead to significantly improved financial results and the creation of substantial shareholder value".

Shell will become the world's top liquefied natural gas trader after the deal.

In December Shell said it would cut 2,800 jobs as a result of restructuring the companies into one unit.

More on this story