The Independent (UK): Unified Royal Dutch Shell steers clear of mega-mergers: Wednesday 29 June 2005

By Michael Harrison, Business Editor

29 June 2005

Shell appeared to rule out any major takeovers at current oil prices yesterday as the company's shareholders voted to end 100 years of tradition by unifying its UK and Dutch halves.

Speaking after shareholders in London and the Hague backed the move to a single company with one board by an overwhelming majority, the chief executive, Jeroen van der Veer, said: "We certainly have our eye on acquisitions but at the moment it's too expensive and it doesn't create shareholder value."

The message was reinforced by Shell's head of exploration and production, Malcolm Brinded, who said takeovers were not attractive with oil at $60 a barrel. Lord Oxburgh, the chairman of the oil giant's UK half, went as far as to rule out Shell entering the bid battle for the US oil group Unocal, saying: "That sort of deal is not on our radar screen."

The unified company, to be called Royal Dutch Shell, will be incorporated in the UK and have its main listing on the London market, but it will be headquartered in the Hague and resident in the Netherlands for tax purposes.

Shareholders in Royal Dutch and Shell Transport & Trading will swap their existing shares for new A and B shares respectively when Royal Dutch Shell starts trading next month.

One of the reasons Shell's management has given for moving to a unified structure is that it will make it easier for the company to issue new equity and debt. This has provoked speculation that Shell is about to go on the acquisition trail. Although Shell has ruled out big deals such as Unocal, which would cost at least $20bn (£11bn), it is thought to have its eyes on smaller "bolt-on" acquisitions worth up to $8bn to $9bn that could enhance its own organic growth.

Although shareholders in London voted in favour of unification by 99.8 per cent, Shell came under heavy attack from private UK investors in Royal Dutch who will have to pay capital gains tax at 40 per cent because of the way the deal is structured. An estimated 3,000 UK citizens face a £77m tax bill on £192m of shares.

One shareholder accused Shell of behaving in an "unfair and shameful" way, another said the company had left them to "hang out and dry" and a third said Shell's investment bank advisers, Citigroup, Rothschilds and ABN Amro, should be forced to pay the tax bills because it was they who had devised the scheme and pocketed $115m in fees.

Shareholders also vented their anger over the fact that the new unified company would henceforth declare its dividend in euros and hold future annual meetings in the Hague. Not that the venue for yesterday's meeting - the ExCel centre in the London Docklands, went down very well either. One shareholder described it as a "benighted" place, moving Lord Kerr, one of Shell's non-executive directors, to agree that the venue was indeed "ghastly".

At one point questioners were drowned out by a combination of the jets landing at the adjacent London City Airport and the air conditioning system, which had to be turned on full blast to counter the heat from the arc lights in the hall.

This did not stop a succession of protesters from as far afield as Sakhalin Island in Russia, Durban in South Africa, Sao Paulo, Texas and the Niger Delta peppering the board with hostile questions about Shell's environmental record. A group of them were eventually escorted from the hall by security men after breaking out into chants of "Sara Wiwa, don't you worry" and "We must fight on", sung to the tune of When The Saints Go Marching In.

Sizing up the new oil giant

* Royal Dutch Shell to be incorporated and listed in London but headquartered in the Hague and Dutch domiciled for tax purposes.

* Single board and single chief executive allowing greater clarity, simplicity and accountability.

* Dividends to be denominated in euros and annual meetings to be held in the Netherlands.

* Market value on London Stock Exchange of about £120bn, constituting 9 per cent of the FTSE 100 index.

* UK owners of shares in Royal Dutch forced to pay capital gains tax on their holdings because of the way the deal is structured.  

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