Simple share question - BG/Shell merger

[Mr Bishi]

They say there is no such thing as a stupid question so here goes, I've only just started looking at shares and this is all very new to me so apologies but I wondered if someone could clarify something for me.

I currently have a small number of BG Group Shares and I have been sent the letter about the Shell merger that states what I stand to gain from the merger - For each BG Group Plc Share: 383p in cash and 0.4454 of a Royal Dutch Shell B Share.

I take it I still retain the BG Group shares though once the merger goes through so the above is in addition to what I already hold rather than instead of?

I just wanted to check that I have understood this correctly or not.

[megaphone]

No the BG shares will go, you'll get cash and Shell B shares.

[Mr Bishi]

Oh? That means I would be worse off to hold on to them, what's in it for the shareholder then as anyone purchasing BG shares today is purchasing them at a premium and will make a loss when the merger goes through.

I feel I am missing something fundamental here as it's not adding up to me, maybe I should stick to to what I know!

[Mr Bishi]

Here is the process as I understand it for example:

I hold 100 (for example) BG shares which today are 1,047p = £1,047

Under the merger I get - 'For each BG Group Plc Share: 383p in cash and 0.4454 of a Royal Dutch Shell B Share'

So that's £383 in cash and 44 Shell B shares

Shell B shares are today 1,496p so my 44 shares are worth £658

Cash of £383 plus share value of £658 = £1,041

So in this example you would be at a loss?

Again apologies if I have completely misunderstood this

Edited by Mr Bishi on Thursday 28th January 17:11

[walm]

Nearly.
You rounded the Shell B's down though (using 44 rather than 44.54).
The actual number is £1,048 for the BG.
And £1,050 for RDSB + cash.

If you really own just 100 shares there will be something in the bumpf telling you what they give you for non-whole number shares: it won't be zero most likely.

Try doing your math again but with 10,000 shares of BG not just 100.
Then it's £104,800 vs. £104,976.

[megaphone]

You can opt for more cash or more Shell shares, that will confuse you even more! How many BG do you hold?

[Olf]

Mr Bishi said:

Oh? That means I would be worse off to hold on to them, what's in it for the shareholder then as anyone purchasing BG shares today is purchasing them at a premium and will make a loss when the merger goes through.

I feel I am missing something fundamental here as it's not adding up to me, maybe I should stick to to what I know!

You're missing something very fundamental. On 7th April 2015 one day before Shell made the offer for BG the BG share price opened at 870.80p.

Shell offered 383p per share and 0.4454 Shell shares.

A Shell (B) share on the 7th April opened at 2,156.00

So they offered you 383 + (2156*0.4454) = 383+960 = 1343

13.43 for your 8.70 BG share. A premium of around 50%.

You can then add dividends and whatever which gets complicated.

What you are missing is that since that day BG shares have been slowly (very slowly) converging to the offer price. For a long time there was a substantial discount which was supposedly the discount for the risk that the deal might not happen. Lots of money made on that gap in the last few weeks.

Make sense?

[Mr Bishi]

I see, that does make sense yes. Thanks