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BG Group Stock Climbed Most Since 2009 Before Shell Merger Report

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April 8, 2015

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By Callie Bost and Joseph Ciolli

(Bloomberg) — Shares of BG Group Plc jumped the most in six years and bullish options volume increased before takeover talks were reported, though analysts said there was too much public speculation about a deal to deem the trading suspicious.

While BG jumped 6.7 percent on Tuesday, the biggest gain since March 2009, the rally came on a day when oil-and-gas companies in the Stoxx Europe 600 Index added 4.2 percent — the most since October 2011. After the close of U.S. exchanges, the Wall Street Journal reported that Royal Dutch Shell Plc was negotiating BG’s purchase.

Energy stocks have climbed worldwide this week amid a surge in crude prices. The industry’s biggest deal in at least a decade pushed BG shares up 35 percent at 11:55 a.m. in London, leading the Stoxx 600 above a record close. The Berkshire, U.K.- based company has been occasionally mentioned in merger speculation, including in a report in the U.K.’s Independent in January.

“It’s certainly a good time to be looking at consolidation in this sector,” Tim Biggam, lead options strategist at Delta Derivatives, said by phone. “Almost daily there has been big options volume in this space.”

Shell agreed to buy BG for about 47 billion pounds ($70 billion) in cash and shares. The acquisition is a response to the slump in oil prices and could set in motion a series of mergers as the largest energy companies look to cut costs and restore profits.

Block Trade

A block of bullish BG options betting on a 5.7 percent gain by July changed hands on April 2, when the stock advanced 0.2 percent. That pushed call volume to 813 contracts, the most since Nov. 28, compared with 34 puts, data compiled by Bloomberg show. European markets were closed on April 3 and 6 for holidays.

“In Europe, speculation is pretty rampant and routine,” Sachin Shah, a special-situations and merger-arbitrage strategist for New York-based Albert Fried & Co., said by phone. “Is there something unusual going on? It’s a little hard to say. And because of the size of this deal, it’s hard to keep something under wraps.”

©2015 Bloomberg News


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