Toronto Star: Royal Dutch Shell eyes Canadian minority buyout: Offer could be worth $7 billion: Saturday 31 December 2005

But any decision could take months

Dec. 31, 2005. 01:00 AM

BENOIT FAUCON

DOW JONES NEWSWIRES

More than 20 years ago, amid a wave of oil-industry consolidation, Royal Dutch Shell PLC decided the best acquisition it could make was to buy into itself. It gobbled up the 30.5 per cent of its U.S. subsidiary, Shell Oil Co., that it didn't already own.

In 2006, history may repeat itself. This time, it may try to buy out the roughly 22 per cent stake held by minority shareholders in its Toronto-listed Shell Canada Ltd. unit, say three people familiar with the matter. They said the Anglo-Dutch major is considering taking advantage of the recent unification of its previously dual corporate structure by launching a share-exchange offer to the Shell Canada minority shareholders. The offer could be worth about $7 billion. But the people familiar with the matter said a minority buyout is only one option Shell has to spend its cash. Other options include capital investment and external acquisitions.

Any decision may take months, as the company needs to look more closely at the financial, legal and regulatory aspects of such an operation to avoid the pitfalls faced with previous Shell buyouts, they said.

Such a move would help boost Shell's profits and simplify the decision process at a subsidiary managing some of its most promising projects, the people said.

Spokespeople for Royal Dutch Shell and Shell Canada said they don't comment on market rumours and speculation. But one person familiar with the matter said, "Over the past three months, Shell has actively looked at it; they have conducted studies" into a possible buyout of Shell Canada minority shares.

Shell has consulted its bankers and looked into the regulatory aspects of such an operation, another person familiar with the matter said. But he added, "There are still months of legal work" ahead before the company makes a decision.

Considering Shell Canada's market capitalization of $31.7 billion, a buyout of the 22 per cent of minority shares would cost just under $7 billion at Thursday's closing price of $38.39 per share.

The people familiar with the plans under consideration said the possibility has long been on the map, but "with the new structure, it's more feasible to make a share exchange," one person said.

In June, a majority of shareholders approved the merger of Shell Transport and Trading Co. and Royal Dutch Petroleum Co., the two companies that formed the Royal Dutch Shell group since 1907. The complex unification process was completed on Dec. 21 upon finalizing the restructuring in some of its subsidiaries.

Buyouts of minorities are typically used by companies that want to consolidate more earnings while enjoying rising profits, and to re-centralize management after corporate-governance issues have arisen.

For instance, in 2003, French telecommunication operator France Telecom SA made an offer for the 13.7 per cent it didn't already own in its wireless arm.

It also acquired the 29.4 per cent held by minority shareholders in its Internet subsidiary the next year. The move followed rising profitability but also a much-criticized acquisition spree by the units.

One Shell executive said there are indications that some of the company's most senior managers could favour a minority buyout in Canada.

The Shell executive said further simplifying Shell's structure by controlling 100 per cent could help the parent company boost future profit numbers.

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