TAXING QUESTIONS ARISING FROM ROYAL DUTCH SHELL MERGER: Open Letter to Royal Dutch Shell shareholders from Association of Private Client Investment Managers and Stockbrokers


Association of Private Client

Investment Managers and Stockbrokers

London Office

114 Middlesex Street

London El 7JH


Tel. +44 (0) 20 7247 7080

Fax: +44 (0) 20 7377 0939



5th July 2005


Letter to Royal Dutch Shell Shareholders


Dear Shareholder


Shell Reconstruction and Royal Dutch Shell Shareholders


You contacted us at APCIMS in regard to your concern about the Shell reconstruction and the Capital Gains Tax consequences. As a result, I am writing to you with an update which I hope you will find helpful.


As you appreciate we are not in a position to advise you on the action you should be taking in relation to the Royal Dutch offer and if you need assistance you must seek the advice of your financial adviser.


The Royal Dutch Annual General Meeting and Shell Transport Annual General Meeting took place on 28th June, but the actual Royal Dutch offer does not close until 18th July 2005. As you know, Shell are required to get 95% acceptance for the offer to proceed and considering the extent of the institutional holdings, it is reasonable to assume that they may reach the 95% threshold, but will not achieve 100% acceptance. This leads to the two questions which are frequently raised with us, of which the first is, whether individuals should accept this offer if they are facing the likelihood of a Capital Gains Tax bill as a result and, secondly, what happens to those shareholders who do not accept.


As you know we have taken this matter to very high levels within Shell in order to try and bring about a better proposition for the UK private investors in Royal Dutch. Although Shell have given us a fair hearing, they have not agreed to make any changes and they inform us that Dutch law, which governs this offer, prevents them making any comments whatsoever whilst the offer remains open. I am very sorry that this is the case as it gives little assistance to you, but nevertheless we will continue to keep the pressure on the company. We remain of the view that it is unacceptable that Shell should have put some of their shareholders into such a difficult situation.


Once offer closure date is reached, Shell will announce the percentage votes and may well keep the offer open for a further few days, which is a normal practice. They will then have to consider what to do with the shareholders who have not accepted the offer and I can assure you that we will be discussing this issue with them. One possibility is that they initiate what are known as "squeeze out provisions" which are governed by Dutch law, have to be approved by a Court and have to be fair.   I have been told that in Dutch law, when a squeeze out is used, the company usually make, a cash offer for the shares. However, I have not been able to confirm this absolutely. Another option would be for Shell not to initiate squeeze out and the shareholders therefore will remain holding their Royal Dutch shares and the dividends being paid as before. However, these shares will not be tradable in the way that they are at the moment if this took place and they will not be quoted on an exchange such as the London Stock Exchange.


A third option, and the one which APCIMS has been urging Shell to adopt, is to make a secondary offer to these residual shareholders which is constructed as a straightforward share exchange and which in UK law would be accepted as qualifying for rollover relief and which, from Shell's perspective, is economically the same as the current offer. The reason why we have been urging this option is that it resolves the Capital Gains Tax problem for the UK shareholders in Royal Dutch Shell. Sadly though we have absolutely no indication whatsoever as to which of these options or indeed any other option Shell might choose once the July dates have been passed.


I have been making some enquiries as to the views of a number of brokers in respect of this matter. Whilst clearly it will have to be for each and every shareholder to decide whether or not they take the current offer, the general picture that is developing appears to be one whereby those shareholders who may either only have a small Capital Gains Tax bill or may have some capital losses to offset the gain, may well find it appropriate to accept the offer. Meanwhile, for those for whom the Capital Gains Tax consequences are significant, then waiting to see what happens appears to be the option that, we understand, an increasing number are taking.


I hope that this letter is helpful and I am so sorry that we have not been able to get Shell to be more helpful, but we will keep on trying.


With best wishes


Yours sincerely


Angela Knight

Chief Executive


Association of Private Client Investment Managers and Stockbrokers

Company limited by guarantee

Registered in England and Wales No. 2991400

VAT Registration No. 675 1363 26


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