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REUTERS: Hedge fund challenges Royal Dutch Shell in court: “The merger was aimed at restoring confidence in Shell after a damaging reserve-overbooking scandal last year which was partly blamed on the group's complicated dual management and ownership.”: “Dutch corporate law experts said if the court ruled in favour of Trafalgar, Shell might be forced to abandon the planned internal merger and go for a Dutch statutory squeeze out to obtain the remaining minority shares in Royal Dutch.”: Mon Dec 12, 2005

 

By Anna Mudeva

 

AMSTERDAM, Dec 12 (Reuters) - A British hedge fund is challenging in court the procedure chosen by oil giant Royal Dutch Shell (RDSa.L: Quote, Profile, Research) to acquire the remaining 1.5 percent of shares in its former Dutch parent as part of its unification.

 

The Amsterdam corporate court said on Monday it will hold a hearing on Tuesday on claims filed by Trafalgar Catalyst Fund and Trafalgar Volatility Fund, which own 900,000 shares or 0.3 percent of the remaining Royal Dutch minority stock.

 

In July, the world's third-biggest oil company declared unconditional the merger of its separately listed parents, Royal Dutch and UK-based Shell Transport & Trading Plc after more than 90 percent of Royal Dutch shareholders tendered their shares.

 

Royal Dutch represented 60 percent of the group under its former dual-company structure.

 

The merger was aimed at restoring confidence in Shell after a damaging reserve-overbooking scandal last year which was partly blamed on the group's complicated dual management and ownership.

 

Royal Dutch Shell said in September it had acquired approximately 98.5 percent of the old Royal Dutch and planned to use allowed legal methods to obtain the remaining shares.

 

But instead of opting for squeeze out of minority holders, the company has decided to use a different method under Dutch law, which it said was simpler, quicker and more cost efficient.

 

Under the alternative method announced in September, the oil giant is carrying out an internal restructuring, including a merger of Royal Dutch with subsidiary Shell Petroleum N.V. (SPNV) that will end the existence of Royal Dutch.

 

The remaining minority holders in Royal Dutch will receive cash, while UK-resident shareholders can choose to opt for loan notes exchangeable for shares in the unified company.

 

RESTRUCTURING, CASH PRICE IN DISPUTE

 

A source familiar with the Trafalgar claims told Reuters it was challenging the way Shell set the cash price to be paid to minority shareholders as well as the linked internal restructuring.   

 

The hedge fund acquired the shares in Royal Dutch late last year or early this year, the source said. The oil major announced plans to merge its former parents in October 2004.

 

"Trafalgar are disputing the change of the capital and the way Shell has structured the (internal) merger," the source said. "If it turns out to be legal, the minimum things they want is for an independent third party to set the cash price."

 

"Shell has asked ABN AMRO to set the cash price but the two have mutual business and the Trafalgar funds want an independent expert to look at the cash price, just like it would be the case if Shell had opted for a squeeze out," the source said.

 

A Shell spokesman in the Hague said his company "will rigorously defend its position", declining further comment or details.

 

A hedge fund would typically use alternative investment strategies and attempt to take advantage of the spread between current market price and the ultimate purchase price in situations such as mergers.

 

Royal Dutch is holding an extraordinary shareholders meeting on Friday, needed to approve its planned merger with SPNV.

 

Dutch corporate law experts said if the court ruled in favour of Trafalgar, Shell might be forced to abandon the planned internal merger and go for a Dutch statutory squeeze out to obtain the remaining minority shares in Royal Dutch.    

 

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