Newstatesmen 4 Nov 04: The business - Patrick Hosking on Shell's move to the Netherlands: The London head office of the UK half of the business, Shell Transport & Trading, is being disbanded.”: “…London will become a mere branch. The company's centre of gravity will shift further over the North Sea.”: “Last month, the company had to admit that it may have got its figures wrong for the fifth time in a year.” (ShellNews.net)
Patrick Hosking
Monday 8th November 2004
When Shell moves its headquarters to the Netherlands, Britain will lose tax revenues - and jobs. Yet our pensions and savings will be even more dependent on the company, writes Patrick Hosking
Watching Some Like It Hot for the umpteenth time the other day, I wondered whether Billy Wilder's classic contained the first instance of product placement. When the Tony Curtis character, a ne'er-do-well jazz musician on the run from the Mob, wants to impress Marilyn Monroe, he picks up a scallop shell from the Florida beach and gives her a knowing look.
Monroe (as Sugar Kane) jumps to the conclusion that he is the heir to the Shell oil fortune. She falls in love, convincing herself that her experience of "always getting the fuzzy end of the lollipop" when it comes to men is at last over.
Which brings me, rather clumsily (sorry), to the question of whether Britain is getting the fuzzy end of the lollipop in the radical restructuring of Shell, which was announced the other day.
The Anglo-Dutch group is ending its dual-company structure in favour of a single board with a single chief executive.
Ever since the 1907 merger of Britain's Shell with Royal Dutch of the Netherlands, the group has consisted of two separately listed companies with their own boards, which jointly own the company, which controls all the assets - the wells, the rigs, the pipelines, the refineries, the plastics plants, the tanker fleets and the filling stations.
The news of the revised structure was greeted positively in both The Hague and London. After all, the dual system has been a recipe for confusion, waste and desperately slow decision-making. The company was finally becoming more directly accountable to its shareholders. The only surprise was that it had taken the group 97 years to come to this conclusion.
Yet there are aspects of the shake-up that are less positive. The London head office of the UK half of the business, Shell Transport & Trading, is being disbanded. The united new business, Royal Dutch Shell, will be run out of a head office in The Hague. About 200 of the most senior people in London will transfer to the Netherlands.
Dress it up however you like, London will become a mere branch. The company's centre of gravity will shift further over the North Sea.
This matters to Britain. A raft of legal, financial and consulting services is less likely to be purchased over here. British jobs - 9,000 of the 119,000 Shell staff are based in the UK - are less likely to be protected in any world cull. The company is less likely to yield to British political, regulatory or media pressure and is inevitably less likely to act in Britain's interests. The tax take for the Exchequer is likely to fall, too.
The other curious aspect of unification is that London becomes the prime listing market for the shares. This has enormous ramifications.
Until now, Shell Transport & Trading - which is worth about £40bn - has accounted for about 3.5 per cent of the FTSE-100 index. But the combined Royal Dutch Shell will be worth about £100bn and account for more like 9 per cent of the index.
Suddenly the company looms much larger in City calculations. British institutional investors - pension funds and insurance companies - will want more exposure to the company. This is either because they overtly shadow the Footsie, or because they are "closet trackers" - unofficially choosing an asset mix which closely follows the Footsie, so that they cannot be sacked for underperforming it.
Either way, new Shell is likely to make a bigger appearance in the pension funds and unit-linked savings plans of tens of millions of Britons. That explains why the share price shot up in the days immediately following the announcement.
Shell is still an enormously profitable company, making profits of about £32m a day. Its hefty dividends help to pay many a pension. But its growth prospects do not look as good as the prospects of many of its peers. Its record in finding new reserves is poor, and it remains mired in a scandal over misleading shareholders about its reserve levels. Three senior people, including the former chairman Sir Philip Watts, have already been ousted over the miscounting. Last month, the company had to admit that it may have got its figures wrong for the fifth time in a year.
It may be right for millions of savers in Britain to be taking, inadvertently, a much bigger punt on this company. But it may well not be.
Much will depend on whether the crude-oil price is permanently going to trade at the current record level of $50 a barrel. That and whether a complacent, civil-service-style management culture can be galvanised. Sadly, Shell is regarded as the Marks & Spencer of the oil industry.
It is certainly a curiosity that we as a nation will be significantly increasing our financial reliance on the company just as it leaves our shores.
Patrick Hosking is investment editor of the Times
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