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The Globe & Mail: Royal Dutch’s grip firm on Shell

DAVID EBNER

CALGARY — Royal Dutch Shell PLC is poised to take over Shell Canada Ltd. after it scored a significant victory in its $8.7-billion takeover bid.

Royal Dutch, which already owns about 78 per cent of Shell, said late Friday that 53.1 per cent of the minority shares had been tendered to its $45-a-share bid, increasing its Shell stake to 89.6 per cent.

The company is now in the position to conduct an amalgamation to take full control of Shell, though dissenting shareholders could challenge the $45 valuation in court.

Royal Dutch has extended its offer until March 30, hoping it can attract more than 90 per cent of the minority shares. It then could conduct a compulsory acquisition, which is a simpler and shorter process than an amalgamation, but it is unlikely to succeed because the deal is opposed by several large investors, led by Jarislowsky Fraser Ltd. But the final result is not in doubt, Royal Dutch said yesterday, adding that it expects the deal to close by the end of June.

“[Royal Dutch] is now sure that we will be able to secure 100 per cent of the outstanding shares,” said Alexandra Wright, a company spokeswoman in London. “There is no doubt about the eventual outcome.”

Royal Dutch is buying Shell to increase its oil sands holdings and had said its offer was conditional on winning majority support from the minority shareholders. Under Canadian law, that is the threshold Royal Dutch had to surpass to conduct a corporate amalgamation. Such a move requires a meeting of Shell shareholders, but with support of the minority investors and Royal Dutch’s large stake, a vote in favour is assured.

“Royal Dutch is almost all the way there,” said Greg Turnbull, a mergers and acquisitions specialist in Calgary at McCarthy Tétrault LLP. “It could take roughly three months but Royal Dutch will still get control.”

With Shell in its grip, Royal Dutch is preparing to integrate the firm into its international operations.

“This is an opportunity to create an integrated unconventional oil business on an international scale,” Jeroen van der Veer, Royal Dutch chief executive officer, said in a statement late Friday.

Last October, when Royal Dutch made its first bid at $40 a share for Shell, the firm said it wanted to simplify its North American business and connect Shell’s oil sands output with its refineries in the United States and around the world.

“We will look for new opportunities to use international refining portfolio to process crude oil from Canada. This will allow the group the greatest flexibility in deciding where and when to build new upgrading capacity,” chief financial officer Peter Voser said at the time.

Royal Dutch increased its offer to $45 a share in January to win support from Shell’s board of directors.

Shell operates the Athabasca oil sands project, which is designed to produce 155,000 barrels of bitumen a day. A 100,000-barrel-a-day expansion is under construction.

The current output is upgraded into synthetic oil at a facility near Edmonton but it now appears the additional raw bitumen will be exported for processing, following the trend established by EnCana Corp. last year when it signed a deal with ConocoPhillips Co. to upgrade bitumen at two refineries in the U.S.

Final decisions about Calgary-based Shell are going to be made in the Netherlands, where Royal Dutch has its headquarters in the Hague. North American operations will probably be co-ordinated from Houston, the home of Shell Oil Co., Royal Dutch’s U.S. arm, according to Martin Molyneaux, an analyst at FirstEnergy Capital Corp.

“North America [probably] becomes one big business unit, instead of two autonomous business units between Shell USA and Shell Canada,” he said yesterday.

Another question is whether Royal Dutch will build a new refinery in Ontario, as Shell had been considering. A change of mind would be a blow for Ontario.

In October, Royal Dutch said full control of Shell made sense for its business. “Under the current structure, Shell [Canada] can develop its own strategy for its own shareholders, which may not always be aligned with our global strategy at Royal Dutch Shell,” Mr. van der Veer said. “We see opportunities to realize benefits through a simplified North American organization.”

For Shell, the takeover ends a long history in Canada, where it was instrumental in building the country’s natural gas production. The Royal Dutch subsidiary was created in 1911 and first sold gasoline in Montreal.

In 1944, Shell discovered a major natural gas field at Jumping Pound west of Calgary. In 1957, Shell found the Waterton gas field in southeastern Alberta, one of the largest in Canadian history.

It was also a pioneer in the north, where it made a major gas discovery in the Mackenzie Delta in the early 1970s, and offshore Nova Scotia, where it found gas at Sable Island in 1967.

http://www.theglobeandmail.com/servlet/story/LAC.20070319.RSHELL19/TPStory/Business

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