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Shell turns its back on Royal Dutch heritage after climate ruling and dividend tax

The Telegraph

Shell turns its back on Royal Dutch heritage after climate ruling and dividend tax

Shell’s jumping ship to the UK bids farewell to over 130 years of association with the Dutch monarchy

For more than 130 years, Royal Dutch Shell has boasted of its historic links with the royal family of the Netherlands.

The energy behemoth can trace its heritage back to a charter granted by King William III for oil exploration in Indonesia in 1890, making it one of the world’s oldest energy companies and a trailblazer of modern capitalism.

But on the orders of Ben van Beurden, Shell’s chief executive, and its chairman Sir Andrew Mackenzie, those links are about to be dramatically cut.

Shell is planning to finally scrap the complicated Anglo-Dutch structure that critics say has been a drag anchor for years.

It would shift the firm’s centre of gravity decisively from The Hague to London, completing a process started in 2005.

If bosses decide to cave in to demands from activist investor Third Point, it would also make a major restructuring of the business easier to accomplish.

The changes will also disqualify the company from using its royal moniker, ending the long association with the Dutch monarchy and leaving it to go by simply “Shell”.

Put the cosmetic changes aside and Shell is arguing there are other compelling reasons to push ahead.

Mackenzie says tidying up the structure will give bosses the flexibility they need to steer the firm through a once-in-a-generation switch to greener power sources.

He has also promised it will lead to an “acceleration” of returns, be that through bigger stock buybacks or dividends.

This will be accomplished through the abolition of Shell’s dual-class share structure, with the company’s headquarters and its tax residency also shifted to the UK, where it is already incorporated.

At the moment the different A and B class shares limit share buybacks to just $2.5bn per quarter according to analysts at RBC Capital Markets – a figure that could easily double once the changes are pushed through.

In a circular to shareholders, the company said: “The board believes that now is the right time to simplify Shell.

“This is a critical enabler for delivering our strategy, making us more competitive and giving us more freedom to seize opportunities.”

The proposals won a cautious welcome from investors and analysts on Monday, including top 10 shareholder Legal & General.

However, many said they remained focused on more important issues – most notably Shell’s long-term plans to reach net zero carbon emissions and improving investor returns.

Nick Stansbury, head of climate solutions at L&G Investment Management, said: “Our initial impression is that these are positive, shareholder-friendly steps to simplify Shell that will allow more capital to be returned to shareholders more efficiently.”

Another top 10 investor added: “It removes an unnecessary complexity and isn’t hugely expensive to achieve in the context of such a large business.”

Shell’s current, convoluted arrangements have their roots – ironically – in a previous attempt to simplify the business just 16 years ago.

The company’s history as a joint Anglo-Dutch enterprise stretches all the way back to 1907, when Shell Transport and Trading Company first linked up with Koninklijke Nederlandse Petroleum Maatschappij (the Royal Dutch Petroleum Company).

For almost a century afterwards, the enlarged business drifted on with a dual structure that kept parallel boards in both the UK and Netherlands – adding an extra layer of bureaucracy to every major decision.

It was only when disaster struck in 2005 that bosses were forced to change these arcane arrangements, after investors blamed the over-reporting of oil reserves on chronic management failures.

Under that simplification, Shell was unified under a British-based company – Royal Dutch Shell Plc – but it remained headquartered in the Netherlands and registered there for tax purposes.

The dual class share structure was put in place in a bid to recognise the different tax regimes that British and Dutch investors faced respectively.

These differing tax systems may have had a bearing on Shell’s decision, and the company’s move echoes one taken by the consumer goods company Unilever last year when it opted to ditch its own Anglo-Dutch structure and consolidate as a London-based business.

Beyond their dual nationalities, the companies have something else in common – they were both opponents of the 15pc dividend tax in the Netherlands.

The dividend tax means that owners of Shell’s Dutch A shares are liable for the levy while owners of UK B shares are not.

It has in effect constrained stock buybacks to the B shares, with even these limited to 25pc of the average trading volume – about $2.5bn.

Yet while Dutch prime minister Mark Rutte’s administration has tried to tackle the issue, it has instead tied itself in knots.

He originally proposed to abolish tax to boost the country’s attractiveness to multinational firms before being forced to U-turn in the wake of concerted opposition.

Since then lawmakers in the Dutch parliament have swung aggressively in the other direction, proposing a hefty “exit tax” for any companies that dare to leave the country.

But in the wake of Shell’s announcement yesterday, Mr Rutte’s government let it be known that it could change course again.

Officials have launched an eleventh-hour effort to secure a majority in parliament for once again trying to scrap the dividend tax, the Financial Times reported.

Whether this will succeed remains to be seen. But the dividend fiasco is not the only thing likely to have left a sour taste in van Beurden’s mouth of late.

In May, Shell was ordered by a court in The Hague to reduce its carbon emissions after campaigners at Friends of the Earth argued its efforts so far did not match commitments made in the Paris climate accords.

The court ruled Shell must achieve a 45pc cut to its CO2 emissions by 2030.

Shell has insisted this ruling played no part in plans to move to Britain and that it will stick to its legal obligations.

It was also silent on a decision last month by the major Dutch pension fund ABP to sell out of fossil fuel companies, including ditching its entire stake in Shell.

But after a long relationship, the hostility to big oil may be just another reason why the company wants to bid “afscheid” to the Netherlands and its royal status once and for all.

SOURCE

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