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CityWire: Shell merger moves market

CityWire: Shell merger moves market

Tuesday 28 June 2005

By: Douglas Bence, Companies Correspondent

The most antiquated corporate structure in the world was dead and buried today as shareholders in Royal Dutch Shell and Shell Transport and Trading voted to merge.

For 98 years, both companies had their own shareholders and boards of directors, but attempted to trade as one unit. The antiquated structure became increasingly burdensome, inefficient, expensive and eventually disastrously counterproductive.

Seven years ago Shell was the world’s largest quoted company in the sector, but in terms of revenue and production, it has since fallen behind BP and Exxon.

When the decision to bring the two halves of the company together was revealed in October, Shell was caught in a massive row over the extent of its reserves and although $150 million has been paid in fines and heads have rolled, including that of the chairman, these remain the subject of lawsuits and a formal investigation by the United States Department of Justice.

Even then bringing the UK and Dutch sides of the group together as Royal Dutch Shell plc needed a compromise with the headquarters in The Hague and incorporation in the UK.

The change will have a huge influence on the stockmarket as the enlarged Shell will account for around 18% of the FTSE 100 with a capitalisation at today’s prices of around $227 billion. Previously Shell and BP combined were responsible for 14% of the FTSE 100.

Shell shares gained 13p to 541p in London, and rose €1.3 higher to €54.3 in Amsterdam after shareholders approved the deal. They closed in London at 543p, up 15p, with nearly 95 million going through the ticker.

BG Group was the day’s biggest winner closing up 15p at 469.48p. BP finished 10p higher at 594p with 70 million shares traded.

Soco International shares rose 33.5p to 606p after revealing that test drilling suggested that its only working oil field, the East Shabwa development in Yemen, may be capable of producing 7,500 barrels of oil a day. The shares added 18.5p on Monday with 280,000 changing hands, half the business there was today.

Shell made for an unusual day. Early interest in oil stocks generally got the FTSE 100 off to a positive start. Buyers were encouraged by a report from Morgan Stanley that raised its estimates of oil producers’ earnings by 27% in 2006, 39% in 2007 and 34% in 2008.

Most of the gains were made in the first hour, but prices held for the rest of the day. The FTSE 100 opening of 5,057.9 was the day’s low and it closed at 5,090.4, up 46.9.

Mining stocks also featured. Concerns that metal prices, steel in particular, would crash if flooded by Chinese exports, were eased when the Beijing government revealed that steel sales fell in May.

UK steel group Corus finished 0.25p higher at 40.75p with nearly 80 million shares in the market. BHP Billiton added 14.4p to 718.88p, Rio Tinto 23p to £16.99p and Antofagasta was 22p better at £12.12p.

Teather said to ‘hold’ GlaxoSmithKline, up 9p to £13.36, and Buy AstraZeneca, 14p higher at £22.39.

A report from JP Morgan suggested limited potential for earnings upgrades at Premier Food. It lowered its rating from overweight to underweight and advised shareholders in the Branston Pickle to Gales Honey group to take profits. Premier, which floated a year ago at 215p, lost 2.5p to 332.25p.

After Lord Harris’ Carpetright revealed its finals, both Panmure and Teather said to ‘hold’. People did more than take their advice, they bought heavily hoping for a bid. The shares closed up 104p at £10.09.5, a rise on the day of 11.49%.

UBS and Teather put out buy recommendations for HMV after its figures helping push the shares up to 236.25p, a rise of 5.75p.

Shares in market newcomer PartyGaming remained in demand. The owners sold a further 115 million shares taking the total to almost 897 million. The shares fell 1.75p to 128.75p with nearly 127 million going through the ticker on top of Monday’s 358 million.

Monday’s losses in Wall Street after London closed were offset by big gains in Boeing and Exxon Mobil. So in spite of the fact that continuing high oil prices may make bonds more attractive to investors than equities, Wall Street was expected to open higher – and it did so partly because after Monday’s record high, the price of US light crude for August delivery fell by $1.24 to $59.3 a barrel on the New York Mercantile Exchange. When London closed the Dow was 10,366.66, up 75.88.

On currency markets, while the US was stronger against both the euro and yen, sterling firmed against the euro at 1,5032, but was weaker against the dollar at 1.8153.

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