BG Group (LON:BG.) has agreed to a £47bn takeover by energy giant Shell (LON:RDSB), the largest deal in the oil sector for a decade.
The mega-merger, announced early on Wednesday, will see Shell paying a 52% premium to the average price of BG the shares over the past 90 days.
If the deal goes ahead, BG Group shareholders will own around 19% of the combined group.
Shell has announced that there is a £750mln cancellation fee if an agreement is not reached.
The merger highlights how the energy sector is being shaken up by ultra-low energy prices.
Shell announced in January that it would be cutting spending by nearly £10bn over the next three years.
A month later BG Group it would write down the value of its oil and gas assets by nearly £6bn (US$9bn) due to the oil price slump.
For Shell, the move is designed to boost the British-Dutch group's growth in liquefied gas and deep water exploration.
A successful takeover would give it access to BG’s multi-billion pound projects in Brazil, East Africa, Kazakhstan and Egypt, including some of the world’s most advanced natural gas projects.
Ben van Beurden, chief executive of Shell, said: "Bold, strategic moves shape our industry. BG and Shell are a great fit. This transaction fits with our strategy and our read on the industry landscape around us.
He also pointed out the financial strengths of the combined company. There would be savings of $2.5bn a year by 2018 he said, through a reduction in capital expenditure - particularly its spending on exploration. He also made the point that the new company would divest assets worth $30bn between 2016 and 2018.
Marc Kimsey, senior trader at Accendo Markets, reckons the deal will prompt sector consolidation.
“The decline in oil price over the past year has battered some stocks which are clearly now looking attractive.
“In the last year BG shares fell 30%, shares in Tullow Oil have fallen 65%, Premier Oil down 55%, and Petrofac down 20%.
“By comparison sector behemoths BP and Royal Dutch Shell have only shed 10% over the same period leaving them in the position of predator rather than prey.”
Van Beurden will lead the combined group while BG’s chief executive Helge Lund will stay on until the deal is complete.
Lund, who was previously boss of Norwegian firm Statoil, has only been in the top role at BG since early February.
The company will not yet confirm how much he will receive for his time as chief executive. So far he has been in the post for 59 days.
But Lund could walk away with as much as £25mln, even after investors forced the company to scrap a controversial package awarded to him when he took the job.
BG's board revised his proposed £12mln upfront shares bonus, after shareholders and the Institute of Directors complained.
Even so, the pay out that Lund is likely to receive will raise eyebrows.