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Financial Post (Canada): Shell shares fall as parent warns it could drop bid: Below offer price

Published: Feb 02, 2007

CALGARY – Shares of Shell Canada Ltd. dipped yesterday below the offer price set by Royal Dutch Shell PLC after the parent company said it was prepared to walk away from its bid to take out minority shareholders.

“The $45-per-share offer, we think, is full and fair value so it is now for the minority shareholder to make up their mind,” chief executive Jeroen van der Veer said.

“At a certain moment, if we don’t get enough people who are prepared to take this full and fair-valued offer, then we move on we have plenty of investment opportunities.”

Some shareholders, many of them hedge funds, cashed out and the stock closed at $44.90, down 36, as more than seven million shares traded hands.

But at least one top shareholder said he won’t tender at that price and is prepared to “grow and prosper” with the company, which last week announced with its partners plans for a fivefold increase production from its oilsands operation in Alberta.

“We think we can make a lot of money with this company longer term. That is why we owned it,” said Len Racioppo, president of Jarislowsky Fraser Ltd., which controls 29.5 million shares.

Mr. Racioppo and other minority shareholders are holding out for a takeout price of around $50 a share.

Last week, the European oil major increased its bid for Shell Canada by 13% — to $45 a share, or $8.7-billion, up from the $40 a share, or $7.7-billion, offered in October. The 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.

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

Also last week, Shell Canada announced plans to expand that to 770,000 barrels a day, regardless of cost pressures and the recent drop in oil prices. Chief executive Clive Mather said the fundamentals of the business remain strong and the incentive to expand remains.

A takeover bid circular is expected to be mailed by Royal Dutch around the end of next week. It will include a report by the Shell Canada directors who looked into the fairness of the parent’s offer.

“We will see if we learn anything new in the circular,” Mr. Racioppo said. “We might change our minds, but I doubt it.”

Mr. van der Veer said his company is rejuvenating its portfolio through new, long-life growth projects that will become legacy assets and produce steady cash flow for decades to come.

“Our upstream investment is driven by a combination of exploration, LNG and unconventionals. Downstream, we are investing in size and complexity in manufacturing worldwide, and growth markets in the East.”

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Ticker SHC/TSX

Close $44.90, down 36

Volume 7,254,865

Avg. 6-month vol. 1,356,461

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