THE WALL STREET JOURNAL: Holders Should Welcome Shell's Simpler Structure (ShellNews.net)

U.K. Index Funds May Aid

Stock, and Reserve Woes

Could Prove Easier to Solve

Edited by Hugo Dixon

October 29, 2004

Shell has done it. The oil and gas titan has gone the whole hog and unified its two holding companies, creating a single company with a single board. (See related article.)

Unpicking the company's century-old dual-headed structure was no easy task. To get there, Shell had to work through complex tax issues and navigate political sensitivities. The final structure fully reflects this. Royal Dutch Shell PLC, the new company, will be a United Kingdom PLC, but headquartered in Amsterdam. It will have both A and B shares to reflect the different taxation of dividends in Holland and the U.K.

Politically, there appear to be some sops to appease Dutch fears about power drifting across the North Sea to London. The headquarters are in Amsterdam, and both the chairman and chief executive are Dutch. What's more, 60% of the board will come from the Royal Dutch side. But some of these arrangements are only temporary. Half the directors are up for reappointment in three years' time, and the chairman, Aad Jacobs, will retire by 2006 -- and possibly sooner.

The new structure improves accountability and decision-making at Shell. And there's an added bonus in Shell's announcement. The group believes it will become the second largest company in the FTSE 100. As it stands, only 40% of the old Royal Dutch/Shell's market capitalization was included in the U.K. index. The extra demand created by index-tracking funds should more than offset its exclusion from other European indexes. That may explain why Shell Transport shares shot up 6% in mid-morning trading, while Royal Dutch shares were up less than 4%.

It may also explain why investors chose to shrug off the bad news: There are still 900 million barrels of questionable reserves sloshing around. The muted reaction is surprising. But investors may have reason to be more relaxed about the reserves this time. After all, Shell looks to be in better shape to deal with these issues now. Its 15%-20% discount to BP may finally start to narrow.

Fiona Maharg-Bravo, Marianne Brun-Rovet and Edward Hadas