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Shell buybacks to target Dutch shares after merger

Reuters: Shell buybacks to target Dutch shares after merger

Posted 20 May 05

By Tom Bergin, European Oil and Gas Correspondent

LONDON (Reuters) – Oil major Shell said its $3 billion to $5 billion buyback programme this year would target shares originating from its Dutch rather than UK holding company, after a planned merger of the two on July 20.

The world’s third-largest listed oil group by market capitalisation announced the final terms for the unification of its two parents in a statement on Thursday.

The creation of a new merged firm, Royal Dutch Shell, is designed to improve corporate governance after a damaging reserves overbooking scandal last year, which many investors blamed on the complex management structure.

Most of the merger terms were in line with previous disclosures but the news on buybacks helped shares in the Amsterdam-listed holding firm, Royal Dutch, outperform their London-listed counterparts.

Royal Dutch shares were up 0.9 percent at 46.15 euros at 1010 GMT, while Shell Transport and Trading shares were unchanged at 472 pence in London.

Shell said it would buy back “A” shares, to be awarded to holders of Royal Dutch, in preference to “B” shares, to be awarded to Shell Transport and Trading shareholders.

The decision reflects Shell’s strategy of taking the most cost-effective option when buying back shares, following relative underperformance of the Amsterdam-listed stock since the merger plan was announced last October.

Investors have expressed a preference for the UK stock as the “B” shareholders will not have to pay Dutch withholding tax.

“Currently Shell trades at a 4.2 percent premium to RD … However, this is expected to be offset to some extent by the fact that management expects to buyback “A” (RD) shares in preference to “B” (Shell),” Citigroup analysts said in a note.

NEARING COMPLETION

Shareholders’ approval on the unification will be sought at annual meetings of the Dutch and British groups on June 28.

Shell’s decision to unify the two holding companies came in the wake of an oil reserves downgrade in 2004, which sent the company’s stock tumbling and led to the dismissal of former Chairman Philip Watts and other leading directors.

Some investors blamed a system whereby executives from one holding company were not accountable to the board of the other for the failure to communicate the reserves issue sooner.

Shell said the unification should deliver significant benefits, including increased clarity and simplicity of governance, increased management efficiency and accountability, as well as flexibility in issuing equity and debt.

While Royal Dutch Shell will declare dividends in euros, UK-based investors will receive payouts in sterling. Shell is a big favourite with small investors who rely on the dividends for an income.

Royal Dutch Shell will have its primary listing in London but its headquarters in The Hague. It will have a secondary listing in Amsterdam and American Depositary Receipts (ADRs) trading in New York.

Former chairman of the twin-headed group, Jeroen van der Veer, will be chief executive, while fellow Dutchman Aad Jacobs, former chairman of the supervisory board of Royal Dutch, will be non-executive chairman.

Shell group is currently 60 percent owned by the Royal Dutch Petroleum Company and 40 percent by the Shell Transport and Trading Company. Executives of the operating group are drawn from the boards of each holding company.

Shell Transport and Trading and Royal Dutch were each founded in the 19th century. The Royal Dutch/Shell Group of companies was created in 1907 to incorporate their operations worldwide.

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