LONDON MARKETS: FTSE 100 Fizzles, With Shell Down After BG Group Bid

By Carla Mozee, MarketWatch

LONDON (MarketWatch) -- U.K. stocks finished lower Wednesday, with Royal Dutch Shell PLC shares hit hard in the wake of the British oil major's plan to take over smaller rival BG Group PLC.

The FTSE 100 fell 0.4% to 6,937.41, backing away from gains that had pushed the blue-chip benchmark back above 7,000 for the first time in roughly two weeks, according to FactSet data.

"Right from the word 'Go' about 60 points of the Footsie's move higher were attributable purely down to BG," allowing the benchmark for a time to outperform the broader European equity market, said Alastair McCaig, market analyst at IG.

BG Group was the London session's star advancer, rallying 26.7% to 11.53 pounds ($17.21) after Shell agreed to buy the energy producer for GBP47 billion ($69.6 billion) in cash and shares (http://www.wsj.com/articles/shell-to-buy-bg-group-1428473660). BG confirmed it was in advanced talks with Shell following a report from The Wall Street Journal. Shares of oil major BP PLC

But Shell's B-class shares (RDSB) and A-class shares were each driven sharply lower, ending down by 8.7% and 5.3%, respectively. Shell, whose market capitalization stood at around GBP126 billion ($190 billion) by late Wednesday, accounts for a more than 8% weighting on the FTSE 100.

Shell and BG appear "to be a good tactical fit", Rebecca O'Keeffe, head of investment at Interactive Investor wrote early Wednesday, but the "premium paid raises questions about whether Shell may have paid too much for BG, particularly if energy prices were to fall further."

U.K. market sentiment also appeared to take a hit late in Wednesday's session after the release of U.S. oil inventory data, said IG's McCaig. The U.S. Energy Information Administration said commercial crude inventories jumped by 10.9 million barrels (http://www.marketwatch.com/story/oil-prices-ease-ahead-of-us-inventory-data-record-saudi-output-2015-04-08) to 482.4 million in the week ended April 3.

"We were expecting that to fall away by 3.3 [million barrels] and as much as anything that has spooked the markets a little bit."

U.S. oil futures (http://www.marketwatch.com/story/oil-prices-ease-ahead-of-us-inventory-data-record-saudi-output-2015-04-08)(CLK5) fell nearly 5% and Brent crude futures slid nearly 4%, falling further after the report.

Elsewhere, shares of Sky PLC picked up 1.6% following a Reuters report that French media conglomerate Vivendi SA is considering a possible purchase of the pay-TV firm. Vivendi denied the report.

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