COULD Royal Dutch/Shell become the target of a hostile takeover? The very notion would have seemed ridiculous only a year ago, when Shell was still considered one of the world's best-managed oil companies. But, due to the ongoing scandal over misrepresentation of its proven oil reserves that has already caused heads to roll in the executive suite, Shell's management is under intense pressure to improve. Reports this week that the firm will unify its two boards, and perhaps even formally merge its Dutch and British holding companies, are both a sign of progress and evidence of how desperate those in charge of the business have become.

After all, despite Shell's recent “no fault” settlements with America's Securities and Exchange Commission and Britain's Financial Services Authority, involving a record fine of over $100m, there may be more scandal to come. An investigation into the firm's finances uncovered memos that suggested that men still serving at the very top also knew about the reserves cover-up.

Within the oil industry, the talk increasingly is that Shell's leading-edge technology, well-trained engineers and strong portfolio of long-term hydrocarbon assets would be worth more in the hands of better managers. As Fadel Gheit, an analyst at Oppenheimer, an investment bank, put it in the title of a recent report, “Shell Should Merge with BP: The Mother of All Mergers.”

Shell is the only big oil firm to avoid the merger frenzy and subsequent management shake-ups that transformed the industry in recent years. Lord John Browne, for example, has managed to turn BP into a global giant. Given his success in integrating other firms into BP, argues Mr Gheit, he is the right man to turn Shell around: “a merger between BP and Shell would not only create the world's largest energy enterprise, but also the most efficient across almost all business segments.”

The trouble is, the antitrust authorities would probably oppose a takeover by BP or, for that matter, Exxon Mobil, the only two energy firms bigger than Shell. However, they would find it harder to stop a merger with another firm, Total. France's national champion is well-run. And its boss, Thierry Desmarest, pulled off France's first big hostile takeover when Total bought Elf. Best of all, his firm (uniquely among top oil firms) has little presence in the crucial American market, which would make it easier to win regulatory approval.

With revenues of over $200 billion a year, Shell is a true giant that will not easily be defeated. Its arcane dual-board structure introduces legal complications that make it a tricky target—though, ironically, this week's news suggests that problem may soon go away. As one big institutional investor in Shell puts it bluntly, “a takeover is possible—and Total is the obvious buyer.”

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