Tell Sid to keep a close eye on the BG share price
ALMOST 30 years have passed since the ‘Tell Sid’ campaign made British Gas’s share sale the bestknown privatisation of the Thatcher era. Investors have since seen a string of demergers, sales and share restructurings and those who stayed the course now hold stock in Centrica, National Grid and BG Group.
BG is the exploration and production side of the original British Gas and there are still 500,000 individual shareholders, owning 7 per cent of the company.
BG was my first tip when I started writing Midas in October 2006. At the time, the shares were 683p and the business looked attractive on a number of levels. Last Wednesday, BG accepted a cash-and-share bid from oil and gas giant Royal Dutch Shell, valued on the day at £47billion or 1350p a share – ten times the price in the 1986 British Gas sale.
Comprising £383 in cash and 44.54 Shell ‘B’ shares for every 100 BG shares held, the offer was priced at a premium of more than 50 per cent to BG’s share price over the past three months.
The stock responded by soaring from 913p on Tuesday to 1300p on Wednesday. Since then, Shell has fallen 7 per cent to 2048p and BG has slipped to 1168p, so the offer is now worth 1295p. As the takeover is largely share-based, the more that Shell falls, the less its offer is worth.
So what should shareholders do? For many years after 2006, BG was a robust investment. The business expanded, the stock rose and big investors were supportive. But in 2012 the group delivered a shock profit warning, followed by another in January last year. Over that time, the shares fell from more than 1500p to less than 800p early this year. And in February the company brought in a new boss, Norwegian Helge Lund – who now stands to pick up a £25million windfall under the deal.
Against that backdrop, the Shell offer looks like a godsend. But the deal will take at least a year to get through the regulatory labyrinth. Meanwhile both shares could be volatile. If oil and gas prices rise, Shell and BG will almost certainly increase too. If prices fall or regulatory hurdles appear, both stocks will be affected.
Midas verdict: BG shares have risen more than 80 per cent since 2006 and, if dividends are taken into account, investors have almost doubled their money. The stock disappointed in recent years, but it still outperformed the FTSE 100 index by a wide margin. However, there is a significant gap between the current BG share price and the price implied by the Shell offer. Shareholders should keep a close eye on the stock and sell as that differential narrows.
This newspaper adheres to the system of regulation overseen by the Independent Press Standards Organisation. IPSO takes complaints about editorial content under the Editors’ Code of Practice, a copy of which can be found at ipso.co.uk.