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Shell to unify boards and look at merger

Financial Times: Shell to unify boards and look at merger: “to restore the company’s credibility”

By Carola Hoyos and James Boxell in London and Ian Bickerton in Amsterdam

12 August 04

Royal Dutch/Shell, the energy group, has reached a preliminary agreement to unify its two boards and has hired bankers to assess the feasibility of merging its Dutch and British holding companies.

The oil group at present is made up of Royal Dutch, the Dutch holding company controlling 60 per cent, and “Shell” Transport and Trading, the UK side controlling the remaining 40 per cent. The two companies have separate main stock exchange listings in Amsterdam and London.

The review, advocated by several important members of Shell’s steering committee, goes beyond investors’ expectations. The advocates of reform are pushing for a “root-and-branch” restructuring, including consideration of a full merger, to restore the company’s credibility. They see less resistance than they had expected for their proposals.

Informal agreement has been reached by members of the boards that the least Shell needs to do is to unify its boards. But any formal decision about the unification, and other proposals, would need the vote of both boards and an agreement at next year’s AGM.

Some legal experts in the UK and the Netherlands, and some advocates of the reform, believe closer alignment of the two companies, rather than a full merger, could be Shell’s best option.

Shell in January revealed it had wrongly booked more than 20 per cent of its oil and gas reserves with the US Securities and Exchange Commission. Shell is also under pressure because it lags its peers in its fundamental business of finding and producing oil and natural gas.

After months of outside pressure from investors, rating agencies and regulators, most investors had expected that world’s third-largest energy group would at most unify its Dutch and UK supervisory boards.

But people close to the discussions say far more is seriously considered although they must still determine the details of the reform, the most ambitious in the company’s 100-year history. They also say that the working group advising the steering committee about how the reform would work and on the implications especially in terms of Shell’s international tax burden has not yet completed its work.

Some UK board members are pushing for a 50/50 structure, which would deprive their Dutch counterparts of what amounts to a veto over important decisions of the group.

Details of the reform, which would take three to five years to complete, according to its advocates, are expected to be made public in November.

A person close to the talks said: “This is not a straightforward exercise. The current corporate structure has been in place for 100 years. If you want to play around with it, make more solid the relationship between the two, it requires quite a bit of work.”

Jeroen van der Veer, the group’s chairman, said recently the review committee was still examining drastic options. Shell last month settled its dispute over its reserves booking with the SEC and the Financial Services Authority, the UK regulator, and agreed to pay $151m in fines.

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