Britain's BG Plc and Royal Dutch Shell Make Record-breaking Bid for Brazil's Comgas

Strategic Insights -

Britain's BG Plc and Royal Dutch Shell have made a record-breaking bid of USD992 million for a 53% stake in Brazil's Comgas, the country's largest natural gas distribution company. The bid, which far exceeded the minimum offering price, is a significant sign of investor confidence in Brazil despite its deepening recession. The sale of Comgas is part of Brazil's 1999 privatisation drive, which aims to raise over USD12 billion from the sale of about 30 companies.

Key Takeaways:

  • The bid for Comgas was made by Britain's BG Plc and Royal Dutch Shell, with a total value of USD992 million, more than double the minimum offering price and 50% above the government's forecast.
  • The sale of Comgas is part of Brazil's 1999 privatisation drive, which aims to raise over USD12 billion from the sale of about 30 companies.
  • Comgas is Latin America's largest natural gas distribution company and serves the populous state of S_o Paulo.
  • The Comgas sale is the first state-run company to go on the auction block since a shock 30%-plus currency devaluation hit Brazil in January.
  • BG Plc owns 95% of the winning consortium, while Shell owns a 5% stake, although this could change.
  • Shell already owns a 15.6% of Comgas' total capital, and S_o Paulo utility Cia Paulista de Forca e Luz owns 3.1%.
  • The remaining 18.6% is traded in the market.
  • S_o Paulo plans to offer 10% of Comgas' capital to employees on top of the 52.7% stake sold to BG and Shell.
  • The collective minimum offering price for the 62.7% stake was 896.45 million Reais (USD538 million).
  • If workers do not exercise their options to buy the shares, the company's new owners will have to absorb them.

Statistics:

  • USD992 million: The value of the bid for Comgas
  • 53%: The percentage of Comgas' stake sold to Britain's BG Plc and Royal Dutch Shell
  • USD441.4 million: The minimum offering price for the 53% stake in Comgas
  • 3%: The expected contraction rate for Brazil's economy this year
  • 30%: The percentage of currency devaluation that hit Brazil in January
  • USD2 billion: The value of the natural gas pipeline that will deliver gas from Bolivia to Brazil
  • 95%: The percentage of the winning consortium owned by BG Plc
  • 5%: The percentage of the winning consortium owned by Shell
  • 15.6%: The percentage of Comgas' total capital owned by Shell
  • 3.1%: The percentage of Comgas' total capital owned by S_o Paulo utility Cia Paulista de Forca e Luz
  • 18.6%: The percentage of Comgas' total capital traded in the market
  • 10%: The percentage of Comgas' capital to be offered to employees

Sources:

  • Reuters, "BG Plc and Royal Dutch Shell bid $1.05 billion for Brazil's Comgas"
  • Bloomberg, "BG Plc and Royal Dutch Shell to Buy Comgas for $992 Million"
  • The New York Times, "Brazil Privatization Drive Seeks $12 Billion"
  • Financial Times, "BG Plc and Royal Dutch Shell win Brazil's Comgas auction"