THE NEW YORK TIMES: Did Shell Merge? Big Banks Argue the Point: ”The huge corporate reorganization of the Royal Dutch/Shell Group is one of the year's largest financial transactions. But is it really a merger?” (ShellNews.net)
Controversy is building in London over the answer to that question.
By HEATHER TIMMONS
Published: November 1, 2004
LONDON: The huge corporate reorganization of the Royal Dutch/Shell Group is one of the year's largest financial transactions. But is it really a merger?
Controversy is building in London over the answer to that question. At stake are bragging rights for the investment banks that top the rankings, known as "league tables," based on who did the most business in mergers and acquisitions for the year.
The Shell deal officially combines two publicly traded entities, Royal Dutch Petroleum and Shell Transport and Trading, into one publicly traded company, and streamlines its management.
But for most practical purposes the companies have been working as one since 1907, when they first agreed to combine. They sorted out many of the big issues that surround most mergers decades ago.
Citigroup, which served as the lead bank on the deal, advising both Royal Dutch Petroleum and Shell Transport and Trading, thinks the transaction counts as a merger. Thomson Financial, one compiler of league tables, agreed, adding $80 billion to the tally of Citigroup's deal-making business this year. That made Citigroup the second-largest mergers and acquisitions adviser of the year, up from No. 4, in Thomson's rankings.
But Dealogic, another league table compiler, refused to give Citigroup credit. And at least three other investment banks are actively lobbying Thomson to remove the Shell revamping from its league tables because they say it unfairly skews the rankings.
Michael Maclure, director for mergers and acquisitions at Dealogic, said the transaction was "the collapse of a dual-listing structure," and shareholders get the same economic interest as they had beforehand. "From that point of view, there is no M.& A. activity," he said.
"There was a deal between the Dutch and the British companies, which occurred in 1907," Mr. Maclure added. "Credit should have been apportioned back then" for any investment banking advice, he said.
Investment bankers who are not working at Citigroup agree that the transaction is not a merger. "Share class reclassification should not be recognized as M.& A. activity," said one energy banker based in London. "Thomson is getting intensely lobbied by multiple firms" to take away Citigroup's $80 billion credit, he said, but the success of that lobbying is not guaranteed. "Sometimes these guys get stubborn," the banker said.
Citigroup said it had no comment on the controversy.
Thomson Financial's European director for deals, Paul Sandell, said the deal met Thomson's criteria for a merger because it involved an exchange of shares. (Shareholders from Royal Dutch and Shell Transport are each being given different classes of shares in the new company.)
This type of controversy is nothing new, Mr. Sandell said. In any deal, if "the structure is somewhat muddled or unusual, there is substantial interest from investment banks" about how it will be ranked in the league tables, he said.
Some said the controversy was another sign that these types of rankings were meaningless. "I don't think volume-based league tables are valid," said Vasco Moreno, the banking research director for the takeover adviser Keefe, Bruyette & Woods.