Shell's takeover of BG to face global antitrust scrutiny

As one of the energy industry's biggest ever deals, Royal Dutch Shell's proposed acquisition of BG Group for £47bn excluding debt will face prolonged scrutiny from regulators around the world.

But legal experts do not expect the European Commission, one of the main watchdogs that will scrutinise the deal, to block the merger, although it will focus on the combined entity's leading position in the liquefied natural gas market, and could force divestitures in areas of the greatest overlap between Shell and BG.

"It's likely the merged entity will have twice the amount of LNG from its nearest rival, so I think that's going to be the main focus of the inquiry," said Paul Henty, a competition lawyer at Charles Russell Speechlys.

The European Commission has not been notified of the deal yet but lawyers said they expected Brussels to become the main regulator in the case, taking precedence over national authorities because of the size and international reach of the deal between Shell and BG.

Ben van Beurden, Shell's chief executive, acknowledged at the deal's unveiling on Wednesday that the transaction will face regulatory scrutiny in Australia, Brazil, China and Brussels, though the company does not anticipate insurmountable issues.

One investor said the BG deal would increase Shell's dominance of the global LNG trade.

"The advantage you get is destination flexibility," said Will Riley, co-manager of the Guinness Global Energy Fund. Shell will be able to exploit price differentials and sell into the most lucrative market at any given time, he added.

Regulators are also likely to focus on the combination of upstream facilities held by Shell and BG, although this could be of less concern than LNG.

The EU was not viewed as likely to block the deal, largely because the commission is traditionally more sensitive towards downstream energy mergers that affect retail prices for consumers.

"There are no enormous problems if there is overlap in upstream," said one Brussels lawyer specialising in oil and gas.

There may also be delays to the deal, which is due to close in the first quarter of next year, because of a variety of reasons, including watchdogs taking different views on the transaction and the amount of information the regulators will have to comb through, said Gustaf Duhs, a competition lawyer at Stevens & Bolton.

Regulators in Brazil or China could take a contrarian view and try to force more remedies, said Mr Henty.

In China, the ministry of commerce holds authority to approve overseas mergers but regulators usually consult with the country's state-owned enterprises before making any decision.

In this case they would likely turn for advice to Cnooc, China's offshore oil producer, which is already a partner with BG in Australia's Queensland Curtis LNG project.

BG alone was poised to become China's biggest LNG supplier by 2017. Cnooc is China's largest LNG importer.

In Brazil, acquiring BG will turn Shell into the largest foreign oil company in the country.

Cade, Brazil's antitrust commission, said it was too early to comment. However, lawyers said they did not expect the deal to face regulatory hurdles in Brazil.

"From my knowledge, these two companies are important players but they are unlikely to have a market dominant position in Brazil," said Andrew Janszky, head of the Latin American practice group at Milbank, Tweed, Hadley & McCloy.

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