Fund houses poised to greenlight Shell/ BG takeover

A raft of fund houses have revealed their hand and come out in favour of the deal, defying critics who argue that the fall in the oil price has made it unworkable for Shell. Kames is understood to be backing the deal with its Shell and BG shares and is understood to be encouraging all its fund managers to vote in line with the house view – contrary to some fund houses which allow the managers of listed trusts to back their clients in company votes rather than toeing the party line.

Rathbone chief investment officer Julian Chillingworth said the fund house would be voting for the deal on behalf of both Shell and BG despite the recent oil price slide. He said: “Our house view is that on balance this deal is good for Shell in the medium term and that it should go ahead,” adding “these assets do not come around too often”.

He said: “Obviously when the deal was first couched the oil price was considerably higher and I think in the short term there have been some question marks around the price Shell is paying. But the company is getting a selection of assets, particularly in the LNG area, which will in the medium term be very positive.”

Richard Marwood, manager of AXA Distribution, Ethical Distribution and Defensive Distribution funds also said he would be backing the deal as both a BG and Shell shareholder. “I think it makes sense for the two businesses to be together,” he said. “A lot of the conversations people have been having are around the way the price has moved since the deal and the terms have undoubtedly moved in favour of BG owners because of the consideration of cash involved. But is that enough to make it worth derailing the transaction? No I don’t think so.”

Job Curtis, fund manager of IC Top 100 fund City of London Investment Trust and Laura Foll, deputy manager of IC top 100 fund Lowland Investment Company and manager of Henderson UK Equity Income and Growth Fund are also sympathetic to the deal.

Mr Curtis said: “We will be voting in favour. I think this is the right thing for Shell to be doing. Rather than drilling in the arctic it’s time to be drilling on Wall Street or the London Stock Exchange and they are buying quality assets which they’ve been coveting for a while.”

Ms Foll agreed. She said: “I can’t speak for other funds but would imagine Henderson would be voting yes to the deal. Within our funds we will be voting for the deal. If we were going to vote against we would need to have had the dialogue with the company before now. Voting against at this stage would just be counterproductive.

“With perfect hindsight Shell would have waited until later on in the year but at the time people did praise Shell for being contrarian because the price had already fallen back. Traditionally we would praise companies for buying assets which are cheap and at least there was a share component to the deal, so it did adjust itself downwards slightly,” she added.

“This is a sensible tie-up but you do have to be patient. It might not look clever on a one to two year view but Shell are buying with a strong view that the oil price will recover and the strategy here is also very complimentary in terms of assets,” she said, adding; “On a five to ten year view Shell might come out well out of this. Ok they didn’t buy right at the bottom but they didn’t buy when oil was over $100 a barrel either.”

Those views are all in stark contrast to vocal shareholder Standard Life, who slammed the deal as unworkable on 8 January in light of the nosedive in the oil price since the deal was launched last year. In a statement issued on 8th January, David Cumming, Head of Equities at Standard Life Investments said: “We have concluded that the proposed terms of the acquisition of BG are value destructive for Shell shareholders. This view is based on the downside risks to Shell’s oil price assumptions plus the tax and operational risks surrounding BG’s Brazilian asset base. Consequently we shall vote against the deal.”

A large chunk of the vote will come from passive funds, which own a major stake in both companies. Both Blackrock, which owns 8.3 per cent of Shell’s A shares and Vanguard, which owns 3.6 per cent, refused to indicate which way they were swinging – though both confirmed they would be taking part in the vote despite popular perception that passive fund managers abstain.

A Blackrock spokesperson says the house will not comment on which way it is voting but is keen to stress that Blackrock always makes use of its shareholder vote. “We do vote for all holdings whether active or passive funds and take our fiduciary holdings very seriously,” he says. “In fact we think it is even more important to vote for our passive holdings because we can’t sell the equities when we want to.”

Funds with highest exposure to Shell

Investment trusts with highest exposure to Shell

Funds with highest exposure to BG

Investment trusts with highest exposure to BG

Source: FE Trustnet, as at 18.01.16