Houston Chronicle: Royal Dutch, Shell look at full merger
June 17, 2004, 2:06PM
LONDON -- The Royal Dutch-Shell Group of Cos. said today that it might unify its unwieldy, two-sided corporate structure to try to improve accountability in the wake of its embarrassing overstatement of its proven oil and gas reserves.
Shell said it might unite the management boards of its two parent companies and abolish a special class of "priority shares."
Shell hopes to restore investor confidence after the reserves scandal and forced resignations of several top executives, including former chairman Sir Philip Watts. It said it would update shareholders on the progress of this internal review at its annual meeting on June 28.
Shell has an unusual, bi-national structure in which Royal Dutch Petroleum Co. of the Netherlands controls 60 percent of the group and Britain's Shell Transport & Trading Co. PLC holds the remaining 40 percent.
Investors and analysts alike have blamed this cumbersome structure for the breakdown in governance that led to significant overstatements of the company's oil and gas reserves. Shell downgraded its reserves by 4.47 billion barrels, or 23 percent, in four separate revisions starting in January.
The company is considering several possible structural changes.
"Nothing is ruled out at this stage," it said in a statement.
The company plans to announce the results of its review by November and to make any changes in time for its 2005 shareholders' meeting.
Shell's update followed the publication in the Financial Times newspaper of a letter by two major Shell shareholders calling for sweeping structural changes and complaining about the secrecy of Shell's internal review. The letter's authors were Eric Knight, head of Knight Vinke Asset Management, and Ted White, director of corporate governance for the California Public Employees' Retirement System, or Calpers.
Shell's statement was a good-faith effort to clarify its strategy, said Angus McPhail, an analyst at ING Financial Markets in Edinburgh, Scotland. "I think it gives evidence that they're actually listening to their shareholder base," he said.
A fusion of Shell's Dutch and British boards might increase costs for the company in the short term but would probably help in the long run by creating a more conventional and unified corporation.
"It would help to crystallize exactly what the company is and where you'd invest in it," McPhail said.
As it is, investors can buy shares in either the Dutch or British parents of the group.
In addition, Shell said it would move to abolish so-called priority shares held by its executive and non-executive board members. These shares give their holders a disproportionate control over the composition of the boards, and ordinary shareholders have targeted them for limiting the influence of rank-and-file investors.
Shell's shares closed 0.9 percent higher at 410 pence ($7.50) Thursday on the London Stock Exchange.