Is the Royal Dutch Shell and BG Group Deal Near Completion?
Credit: Bidness Etc
Bidness Etc takes a look at how Shell-BG merger is right on track, after receiving approval from Australia’s Foreign Investment Review Board
Royal Dutch Shell plc (ADR) (NYSE:RDS.A) is just one step away from closing a merger deal with BG Group plc. On Thursday, December 3, the Anglo-Dutch company received a green signal from Australia’s Foreign Investment Review Board (FIRB). The acquisition deal won approval from Australian Competition and Consumer Commission (ACCC) last month, and now, FIRB clearance marks the end of regulatory hurdles in Australia.
FIRB has, however, approved the $70 billion deal on one condition that the energy company will use “co-operative compliance approach” for its taxation, after the successful completion of its proposed merger deal. This approach will allow the merged entity of Shell and BG Group plc (ADR) (OTCMKTS:BRGYY) to work closely with the Australian Taxation Office (ATO) on issues, like determining transfer pricing and loans between the two companies before tax filing. This will allow more transparency between the tax authority and the multinational and will prevent any tax avoiding scheme.
FIRB is imposing the tax condition on the energy giant’s merger because of the heightened concerns over foreign-based companies’ tax structure. Last month, a Senate tax inquiry was conducted in Australia as people were worried about oil giant, Chevron Corporation’s (NYSE:CVX) tax system. They claimed Chevron’s tax appraoch allow it to avoid high tax payment in Australia.
Shell’s CEO, Ben van Beurden is satisfied with the Board’s decision as according to Reuters, he said FIRB clearance is an “important step” for the completion of the deal. Moreover, the new tax approach is not likely to create much problems for Shell or the pending merger as the Hague-based energy company already uses the tax system. Last month, the oil giant said in the Senate tax hearing that this type of tax approach creates more certainty and efficiency in the business operations and reduces chances of disputes between the companies and the government.
Although FIRB’s final verdict has pleased the oil giant, local energy users are not happy with the decision. They were worried that the merger will reduce the gas supplies in the local market. They believe following the completion of the merger, Shell’s joint venture with PetroChina, Arrow Energy, will use BG Group’s existing facilities in Queensland, to export the gas. The east coast gas users’ last hope was FIRB as they wanted the Board to take decision in the best interests of the nation. However, FIRB decision has also disappointed the gas buyers.
Shell has obtained clearance from US, UK, Brazil and Australian regulatory authorities. The oil and gas company is expected to close the deal in first half of 2016 after winning approval from the China Ministry of Commerce (MOFCOM). It is being speculated that China’s MOFCOM will demand a favor for its local gas industry against the green signal. Last year, it demanded Glencore International PLC, St. Helier (OTCMKTS:GLNCY) to sell its copper mine to a Chinese enterprise, against approval for its merger deal with Xstrata Plc ADR (OTCMKTS:XSRAY).
According to the news sources, MOFCOM is pushing Shell to co-operate with Chinese energy companies, including Sinopec, China National Offshore Oil Corp., and China National Petroleum Corp. The Chinese watchdog wants to ensure long-term gas supplies for the country and financial benefits for the whole energy sector. Although it would be somewhat hard for Shell to receive approval from China regulatory authority, the energy company is on the right track to complete the deal. Four pre-conditions have already been met, and Shell will try hard to win permission from China’s MOFCOM.