Oil major switches sides: Shell’s UK move is a big plus for the City post-Brexit, says ALEX BRUMMER
Shell’s decision to sacrifice its ‘Royal Dutch’ designation and unify its domicile in London is epoch-making.
It is a big plus for the City post-Brexit, even if there are green campaigners who will find the increased presence of an oil major in the UK a cause for disquiet.
The top brass at the oil giant is furious about the Dutch court ruling that it must cut 45 per cent from its overall emissions by 2030.
Pollution: Shell’s top brass are furious about a Dutch court ruling that it must cut 45% from its overall emissions by 2030
Whether or not the move to London has any bearing on the court case, Shell will try to reverse a decision which it regards as having little basis in science and reality.
The true reasons for the switch to London are more prosaic.
Since Shell began the process of bringing together Royal Dutch and London-based Shell Transport and Trading in 2005, it has had a complex structure.
The ‘A’ shares in London and the ‘B’ shares quoted in the Netherlands are taxed on a different basis.
This is a cumbersome arrangement and Californian-born and educated chief financial officer Jessica Uhl has been working on a solution since she took over in 2017.
Among the complications is administering share buybacks which Shell has pledged since selling its Permian Basin holdings in the south-western part of the United States for £7billion in September of this year.
The Dutch taxes on payments to investors made the allocation of distributed capital trickier.
Given that Shell may dispose of more assets as its strives to achieve climate change goals, simplifying its ownership is sensible.
The financial costs of the switch will be relatively modest but the political battle harder.
The Hague has already lost one Anglo-Dutch giant in Unilever to London, so doubtless there will be politicians and agitators demanding some kind of exit tax.
They will feel empowered by the knowledge that Shell is waving goodbye to a ‘Royal’ designation that it has held for more than a century.
The loss of identity could be seen in the Netherlands as a human rights issue.
There is rightly a high hurdle of 75 per cent of voting shareholders to cross if the change of domicile is to be approved.
The current share register looks as if it should be onside with 30 per cent of the stock held in the UK, 30 per cent in the United States and just 8pc by Dutch institutions. The rest is in the hands of other global holders.
The deal might also satisfy activist investor Dan Loeb of Third Point. It falls short of his target of a split, but does show a reforming mindset.
The only people directly affected by the change will be Shell boss Ben van Beurden, who has been in charge since 2014, and Uhl. Both will be required to run the company from London.
There will be a great deal of commuting ahead for Uhl. In the Covid era that will mean a lot of passenger locator form filling and testing.
As for van Beurden, after seven fat years at the helm this could be his last hurrah. As the person who doubled down on oil and gas with the £51billion takeover of BG Group in 2016 that might be just as well.
After all, the next strategic priority will be to come up with a carbon neutral strategy which investors can believe in.
Finally, after sitting quietly on the sidelines, Bain Capital has deigned to outline its plans for mutual insurer LV if it is successful in seizing control.
As might be expected from private equity, the published release is wholly deficient.
To the uninitiated, the financial contribution will look terribly splendid.
Yet the promised payout of £212million to 1.1m policyholders is simply £100-per-head, which is way below previous mutual to public conversions.
As for the £264million payment into the LV staff pension plan, that would have to be met from LV funds whatever the ownership structure. It may be a higher number under Bain because of a weakening of the covenant.
A promised £160million of investment is simply the operating profit which could be designated for IT modernisation whoever is in charge.
It is also possible to deduce from the numbers that some £30million has been set aside for advisers and administration fees. Bain Capital assures members that ‘no new debt’ will be added as part of the transaction.
Maybe. But what happens afterwards when a new structure is put in place?