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Financial Post (Canada): Shell board snubbed: Backs Royal Dutch bid: Shareholders may deal directly with parent over price

Claudia Cattaneo And Sean Silcoff
Wednesday, January 24, 2007
Minority shareholders of Shell Canada Ltd. are considering holding talks directly with the company’s London-based parent to get a better takeout price for their shares, sources said yesterday.

Royal Dutch Shell PLC, the Anglo-Dutch oil giant, increased its bid yesterday by 13% — to $45 a share, or $8.7-billion, up from $40 a share, or $7.7-billion offered in October — to buy the 22% of Shell Canada it doesn’t own.

The new bid is backed by the board of Shell Canada, which appointed a special committee of five independent directors last fall to provide a fairness opinion.

But one major investor, who asked to remain anonymous, said there is widespread dissatisfaction with the new offer and there has been discussion of holding “a dialogue” directly with Royal Dutch.

Royal Dutch has a shortage of reserves and wants to aggressively expand in Canada’s oilsands. Shell Canada holds 60% of the Athabasca Oilsands Project, which produces about 155,000 barrels a day and announced a 100,000-b/d expansion in August.

“We’re disappointed,” said Gary Aitken, director of equity research at Bissett Investment Management, which owns 4.4 million shares. “We don’t think $45 is sufficient. This is not the takeout of a broken entity or a company that is struggling or in need of capital. It’s been delivering good profitability and growth. We don’t see why that can’t continue.”

Shell Canada is making public its financial results for 2006 today.

Len Racioppo, president of Jarislowsky Fraser Ltd., which controls 29.5 million shares, said he is prepared to remain a minority shareholder. He contends a fair bid would be around $50.

“It’s disappointing, but when have you ever had a parent company offer full value for a takeout of minority shareholders?” he asked. “You can get a full- value bid when there’s an auction. But in this case, it’s not an auction. It’s a give and take. It’s a negotiation, really.”

The bid for Shell Canada, along with rumours that another European oil major, Paris-based Total SA, is preparing a bid for Nexen Inc., a developer of a large oilsands project with major international assets, boosted Canadian oilsands stocks yesterday on expectations more takeover offers are coming. Shares for the group had weakened on lower oil prices and increasing costs of extracting oil from the sands.

“We have been saying for a while that the Royal Dutch bid for Shell Canada would have some sector implications,” said Andrew Potter, oil-and-gas analyst at UBS Securities Canada Inc. “The real story is that it helps highlight the value of oilsands within the large caps and even the small-cap oilsands players.”

Nexen would not comment yesterday on speculation that Total may offer as much as $20- billion, or $90 a share, to buy the company.

Mr. Potter said he doesn’t think a Total bid for Nexen is imminent. However, he said Nexen is one of the most likely takeover targets among Canadian producers because of its 50% stake in the Long Lake oilsands project and assets in the Gulf of Mexico and North Sea that would appeal to oil majors.

Royal Dutch said a takeover bid circular will be mailed early next month.

Jan Rowley, spokeswoman for Shell Canada, said the fairness opinion report produced by the special board committee will be attached to the bid circular.

There has been no discussion yet about how Shell Canada will be restructured if the bid succeeds, she said.

Martin Molyneaux, oil and gas analyst at First Energy Capital Corp., said $45 “is a pretty decent price.”

“Everybody else is trading at much smaller multiples,” he said. “If I was a shareholder, I’d take my money and run and plough it into one of the huge oilsands players” such as Canadian Natural Resources Ltd. and Nexen that are trading at a 40% to 50% discount to Shell Canada.

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