Daily Telegraph: 'So we were all sacrificial lambs?': “Shell's directors were aware that the company's controversial restructuring would leave some of its British investors nursing a multi-million-pound tax bill months before the deal went through, according to a leaked telephone conversation with a senior Shell executive.”: “Peter Buckley, chairman of Caledonia Investments and one of the rebels, said: "It is pretty sad that Shell is spending a lot of money to rebuild their image and then goes on to score such an own goal. I think it is shabby of Shell.": Saturday 10 September 2005

(Filed: 10/09/2005)

Shell knew its merger would land investors a hefty tax bill, reports Christopher Hope

Shell's directors were aware that the company's controversial restructuring would leave some of its British investors nursing a multi-million-pound tax bill months before the deal went through, according to a leaked telephone conversation with a senior Shell executive.

David Hunter raised doubts in a leaked phone call

Yesterday rebel investors in Royal Dutch Petroleum, who are holding out for a better deal, demanded to know why the board was willing to saddle them with the capital gains tax in the merger with Shell Transport & Trading to create Royal Dutch Shell.

The conversation on July 15 this year was between David Lawrence, Shell's executive vice president in charge of investor relations, and David Hunter, a director at broker Smith & Williamson, who was representing a large number of British holders in Royal Dutch.

Mr Lawrence started by explaining that he had telephoned to address some of the issues raised in an earlier letter from Mr Hunter to Shell Transport's chairman Lord Oxburgh of Liverpool.

David Lawrence: "You raised a couple of questions at the end."

David Hunter: "I did indeed."

DL: "As to whether the board was advised and the board was aware of the tax implications of the deal, including the impact to the UK shareholders of Royal Dutch: so they were aware."

DH: "So we were all sacrificial lambs?"

DL: "I would not say that."

DH: "We won't go into the matter now but the fact is that we are going to lose a huge amount of our investment and if nothing had happened we would not have lost it, and frankly I would not have voted for this thing and I have been a stockbroker for many years."

After Mr Hunter questioned whether Shell had been "properly advised" - Shell's restructuring cost $115m in adviser fees to companies such as Citigroup, NM Rothschild, Deutsche Bank and ABN Amro and City law firm Slaughter and May - the conversation concluded with a sharp exchange.

DH: "The bottom line is that a significant number of British shareholders and the board were advised in advance to have their throats cut."

DL: "The board were aware of the issues that were raised and looked at [them] in light of the entire structure."

DH: "Had nobody any idea how many British shareholders of Royal Dutch there were?"

DL: "Now when we looked at that again as you know they were held in the form of bearer shares and we certainly recognised there were British shareholders. The deal was not done with our eyes closed … the attempt was made to be able to structure this deal in such a way that it would provide for our shareholders the best deal possible and it did."

Shell originally insisted that it had no idea how many - if any - British investors in Royal Dutch Petroleum would have to pay capital gains tax as a result of the merger. Jeroen van der Veer, Shell's chief executive, also said that there was nothing in Shell's "toolbox" to help the investors.

However, last month Shell revealed that 1.3pc of investors in Royal Dutch had failed to accept the terms of the merger, and Shell's board will meet this month to decide what offer to make to the rebels.

The Association of Private Client Investment Managers (Apcims) told Shell two weeks ago that it knew of at least 346 refuseniks controlling 2m shares, worth £36.5m, who were holding out. A further 2,000 British holders in Royal Dutch accepted the offer under duress.

Peter Buckley, chairman of Caledonia Investments and one of the rebels, said: "It is pretty sad that Shell is spending a lot of money to rebuild their image and then goes on to score such an own goal. I think it is shabby of Shell."

Angela Knight, Apcims' chief executive, said: "We are wondering - why didn't someone on the Shell board say 'Hang on, what's this about a CGT [capital gains tax] liability? What does this actually mean?'"

A Shell spokesman said: "[The capital gains tax implications for UK Royal Dutch holders] is in the public domain and mentioned in the Listing Particulars.

"When we put the offer together we explored many different options to make this deal the best we could for the interests of our shareholders and the companies. The terms of the transaction were the same on a pre-tax basis for all Royal Dutch shareholders in the UK or elsewhere. It was not possible to treat everyone equally on a post-tax basis when so many jurisdictions' tax laws are involved."

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2005/09/10/ccshel10.xml

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