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Bloomberg: Royal Dutch Shell Plc a takeover target?

EXTRACT: There were plenty of other targets it could have chosen in the Netherlands if it wanted to. How about taking a pop at Royal Dutch Shell Plc? In 2004, it emerged that the Anglo-Dutch oil company had overstated its reserves, leading to lawsuits from investors and fines by regulators. True, Shell has stabilized since then, but it is hard to escape the impression it has been eclipsed by longtime competitor BP Plc. Taking a medium-term view, nobody would describe Shell as a star of the European oil industry.

Article headline: Barclays, ABN Fight Is Medicine for Dutch Economy: Matthew Lynn:

By Matthew Lynn

April 4 (Bloomberg) — ABN Amro Holding NV is locked in negotiations with Barclays Plc about creating one of the largest financial-services companies in the world. They may seal a deal. Or another bank may yet decide to gatecrash the party.

Still, one winner is already clear: the Dutch economy.

That may seem paradoxical. The political and industrial establishment of the Netherlands would be horrified at the prospect of hostile raiders and hedge funds destroying the cozy cartel of companies that form the backbone of the economy.
They are wrong. A shock to the system is precisely what the Netherlands needs.

Many of its biggest companies are bloated and poorly managed. The threat of being taken apart is just what they need to shake them back to life.

“We resist shareholder pressure in the Netherlands,” Hans Labohm, guest lecturer at the Hague-based Clingendael Netherlands Institute of International Relations, said in a telephone interview. “But we need more pressure on managements from shareholders, otherwise the people in charge become a little bit lazy and complacent.”

There is little questioning the size of the shock to the Dutch financial system delivered by the attack on ABN Amro. The bank, valued at about 62 billion euros ($83 billion), is among the biggest companies in the Dutch economy. It is the third- largest member of the Amsterdam Exchanges Index, accounting for almost 12 percent of the benchmark’s weightings.

If ABN Amro is taken over, no company in the Netherlands is safe. And rightly so. In the last decade, Dutch industry has hardly put in a stellar performance.
TCI’s Stake

ABN Amro’s underperformance was first highlighted by the U.K.-based hedge fund TCI Fund Management, which built a stake and started demanding changes in the way ABN Amro was managed. TCI wanted to sharpen up the bank’s act and profit from it.

There were plenty of other targets it could have chosen in the Netherlands if it wanted to.

How about taking a pop at Royal Dutch Shell Plc? In 2004, it emerged that the Anglo-Dutch oil company had overstated its reserves, leading to lawsuits from investors and fines by regulators. True, Shell has stabilized since then, but it is hard to escape the impression it has been eclipsed by longtime competitor BP Plc. Taking a medium-term view, nobody would describe Shell as a star of the European oil industry.

Or how about that other Anglo-Dutch colossus, Unilever? The world’s second-largest food and detergent company missed analysts’ estimates when it reported fourth-quarter results in February. Its European sales rose just 0.1 percent at a time when Europe’s economy was finally recovering. In recent years, Unilever has been one long story of missed forecasts, and growth initiatives that have failed to come to life.

ING Groep’s Confusion

Likewise, Dutch companies such as Royal Philips Electronics NV, the electronics manufacturer, or Reed Elsevier Plc, the Anglo-Dutch publishing business, haven’t exactly been setting the world on fire. Royal Ahold NV, the grocery chain, has been under pressure from two hedge funds to sell its U.S. stores. Even ABN Amro’s big competitor ING Groep NV has been showing signs of strategic confusion: It recently asked Goldman Sachs Group Inc. and JPMorgan Chase & Co. to review its strategy.
Of all Europe’s trading nations, the Netherlands may have some of the finest traditions. In recent years, however, it has looked more like a retirement home for corporations: There is a lot of past and not much present.

So far, there is little sign the establishment is willing to accept hostile raids and troublesome hedge funds. After the talk of an ABN Amro takeover, Nout Wellink, the president of the Dutch central bank, described the moves as “a bridge too far.”

Political Attacks

Meanwhile, Dutch lawmakers have been stepping up their attacks on the kind of investor activists willing to take on Dutch companies: Ieke van den Burg, a member of the European Parliament for the Netherlands, is among the politicians calling for Europe-wide curbs on hedge and private-equity funds.

That is completely upside down. It has been the absence of pressure from shareholders, not its arrival, that has plagued the Dutch economy in recent times.
In the fourth quarter, the economy slowed as household spending declined. Gross domestic product expanded just 0.6 percent from the previous three months, while other euro-area economies boosted growth as exports and spending surged.

The Netherlands is a small, open economy that depends on trading for its survival. There is no big domestic demand to fall back on. Nor is there much evidence of a new wave of entrepreneurial young businesses. If its big companies don’t perform, neither does the Dutch economy.

Retreating into a narrow-minded protectionism is no way to deal with the challenges. Neither is resisting a new wave of active shareholders.

The Netherlands has coasted on the achievements of its established businesses for too long. The sooner that more hostile breakup bids are made, the better.

(Matthew Lynn is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: Matthew Lynn in London at [email protected]

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