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Financial Times: A necessary evil: ‘The lawyers have cleaned up again’

By Chris Hughes

Published: April 12 2007 03:00 | Last updated: April 12 2007 03:00

The lawyers have cleaned up again. It is hard to see any other winners from Shell’s agreement to pay $353m (£179m) to European investors to settle claims relating to the restatement of its reserves in 2004.

The payment is simply a transfer of value from Shell’s current shareholders to previous shareholders, many of which overlap. Current shareholders will also foot the legal bill for the settlement.

But it would be unfair to criticise the investors who participated in the settlement too harshly. They probably had little choice.

Why? Because Shell is already the subject of litigation by US investors. By reaching a separate settlement, Shell’s European investors have prevented themselves effectively cross-subsidising any settlement for US investors, who represented only 20 per cent of the Shell register throughout the period of the alleged mis-statement. In theory, Shell’s current shareholders are not being financially disadvantaged. The share price should already have been pricing in the risk of this widely publicised settlement. The shares rose a little yesterday, proving the point.

It would be worrying if this case opened the floodgates to more class action lawsuits by European investors. But that looks unlikely. This was a pretty specific situation.

The lawyers may be the only net financial gainers from all this. But at least Shell’s European shareholders have protected their investment.

Copyright The Financial Times Limited 2007

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