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Royal Dutch Shell Plc announced a major overhaul of its legal and fiscal structure as the company moves away from the Netherlands, straining relations with what has been its hometown for a century.
While Shell is fighting activist investor Shell Dan Loeb, the company is leaving the energy sector to attract shareholders who are demanding a split in two due to concerns about climate change.
Shell said on Monday it planned to remove its current double-share structure, remove “Royal Dutch” from its name, relocate its tax headquarters to the UK and move its top management to The Hague in London. The Dutch government immediately said it took it “by surprise” with the announcement.
It has taken years to adopt a simplified structure, but Shell’s relationship in its home country is growing. The Dutch pension fund ABP said last month it would remove major oil – and all fossil fuels – from its portfolio without warning, and in May a Hague court ruled that the company should reduce emissions harder and faster than expected.
“Simplification will normalize the structure of our shares under the taxes and legal jurisdictions of a single country and make us more competitive,” President Andrew Mackenzie said in a statement. “Shell will be better positioned to take advantage of opportunities and play a leading role in the energy transition.”
Since the merger of Koninklijke Nederlandsche Petroleum Maatschappij and Shell Transport & Trading Co in 2005, Koninklijke Nederlandsche Petroleum Maatschappij and Shell Transport & Trading Co have been listed in the United Kingdom with their registered office and double shareholding in the United Kingdom. he said.
Shell also said it would probably no longer meet the terms of use of “Royal” in its title – part of its name since 1907 – and expects it to be Shell Plc, subject to shareholder approval.
The push from the UK
UK Business Secretary Kwasi Kwarteng welcomed the news, saying it was “a clear vote of confidence in the UK economy” and that it would “attract investment and create jobs”. Shell said about 10 executives – including CEO Ben van Beurden and chief financial officer Jessica Uhl – would relocate to Britain.
“Shell reported this intention to the cabinet yesterday,” Dutch Economy and Climate Policy Minister Stef Blok said. “We are shocked by this news. The government deeply regrets that Shell wanted to move its headquarters to the UK. ”
Although the Netherlands is in favor of companies, Prime Minister Mark Rutte has had to deal with a growing feeling that companies are not returning enough. He had to backtrack on a 2017 plan to exclude the dividend tax, putting Shell’s headquarters structure in jeopardy. The author of consumer goods, Unilever Plc, also completed its double structure in 2020 and was fully registered as a British company.
Like its European counterparts, Shell has embarked on a multi-decade strategy to reduce emissions, partly by selling more low-carbon fuels. But his approach to the energy transition is struggling to gain strength. Prior to last month’s earnings report, activist investor Loeb stated that his Third Point LLC had taken a $ 750 million stake in Shell and was pushing for the company to go bankrupt.
Third Point’s position in early 2023 that ABP said it would dismantle 15 billion euros ($ 17.2 billion) in fossil fuel assets appeared to be Shell’s longtime ally, including its stake in the energy giant.
Legal appeal
Investor pressure comes on top of legal challenges. Shell has appealed the May court ruling that the company should reduce emissions by 45% by 2030.
“The simplification will not affect court proceedings related to the Dutch court ruling,” Mackenzie said, adding that the company has expanded its carbon reduction targets.
The change in share classes removes Shell’s disadvantage over its peers, according to analyst Oswald Clint Sanford C. Bernstein. It will end misalignments between the two different tax and revenue authorities, “eliminating the frictional and withholding tax issues around purchases, allowing for material increases,” he said.
After cutting the dividend at the peak of the pandemic last year, Shell has spent the last 1 1/2 years trying to resolve relations with shareholders. The company resumed purchases in July and has promised to return investors an additional $ 7 billion from the sale of U.S. Perm assets.
Shell is currently limited to quarterly $ 2.5 billion in share purchases, a figure that could double that under the new structure, Biraj Borkhataria RBC Europe Ltd. said. according to the analyst. “For us, that suggests Shell’s intention to return more of this to shareholders in the coming years,” he said.
Investors will be asked to vote on a special resolution on simplification plans. The general assembly will be held on December 10 in Rotterdam.
(Updates with comments from the UK Business Secretary in the eighth paragraph).
–With the help of Javier Blas.
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