British Gas boosted by takeover rumours
Monday 18 November 1996
British Gas and Shell both refused to be drawn into confirming or denying the claimed talks, which have been rumoured in the stock market for several weeks. They said that they did not comment on market rumour and speculation.
There was no evidence yesterday of any imminent deal, and sources familiar with the companies suggested that whatever discussions might have taken place in the past, the idea was by now dead and buried.
One source said: "Even if it is right, it must have been long in the past and at a very immature stage, because it had not got to the point of bringing advisers in."
Other City sources said that British Gas management was heavily loaded with work on the demerger planned for next year which will break the company in two, and on the Monopolies and Mergers Commission inquiry, which is to report by April.
They said that whatever the past discussions, the company had no spare management capacity to deal with the complexities of a possible takeover, which would be bound to be referred to the MMC because Shell is one of British Gas's biggest suppliers.
However, if an approach in the recent past from Shell is confirmed, institutional shareholders in British Gas are likely to be angry that it was not explored further.
A bid could be at a substantial price premium, and could give investors a better deal than the company's own demerger plan. The persistence of the reports of talks could prompt questions to the companies from the Stock Exchange about whether a statement is necessary.
Shell would have no trouble swallowing British Gas. Its UK arm is more than three times as valuable and the world-wide Royal Dutch Shell group is worth nearly 10 times as much.
Any takeover of British Gas would have to be at a substantial premium to British Gas's pounds 9bn market capitalisation, which rose steadily last week as rumours swirled around the company. The price closed at 209p on Friday, up 17.5p on the week.
The Sunday Telegraph reported yesterday that secret Shell documents detailed a proposed takeover under the code-name "Project Napoleon" which had been discussed with Mr Giordano of British Gas, who had made counter-proposals of his own.
The documents were said to allude to both Shell and British Gas proposals and the possibility of counter bidders, and they suggested an acquisition timetable of the end of 1996.
Recent speculation in the City has suggested that talks between Shell and British Gas fell apart when British Gas got cold feet because it was so far down the route to a demerger. Shell was said to be interested only in an agreed takeover, and let the matter drop.
The City believes that a number of large energy companies have done the arithmetic of a takeover of British Gas, attracted by its huge customer database which gives it a head start in a domestic gas market newly opened to competition.
Interest in British Gas is not new. BP is one of the oil giants known to have examined the idea of a takeover before privatisation, but it decided against making an offer for the nationalised company. It is widely thought to have looked at the idea more recently, but to have rejected it again.
British Gas owns the lucrative but highly regulated gas transmission business, the supply business that sells to domestic customers and exploration and production interests, including the lucrative Morecambe Bay gas field.
A takeover by a big gas producer would raise monopolies problems and perhaps require divestment of some of the assets.
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