Shell pumps the long way for its fine balancing act across the North Sea: The Anglo-Dutch oil giant appears to have kept all sides happy, write James Boxell and Ian Bickerton

Friday, Oct 29, 2004

Given the disdain shown by Royal Dutch/Shell's board members to its outgoing governance structure yesterday, it raises the question of why it took them so long to get rid of it - and why they needed investors to convince them it was necessary.

Lord Oxburgh, chairman of Shell Transport and Trading, the UK holding company, described the occasion as a "great day" and a "historic moment".

He added: "We will be able to move on from a very complex corporate structure that everybody found difficult to understand."

The company and its financial advisers, NM Rothschild and Citigroup, and latterly ABN Amro and Deutsche Bank, appear to have formulated a deal structure that keeps everybody happy.

Investors are pleased that they have clean lines of corporate governance and they will not suffer any tax disadvantages on their dividends from the new deal.

The advisers achieved this by recommending that Dutch and British shares be split into A and B categories, each with their own domestic dividend.

Jeroen van der Veer, new chief executive of the combined group, to be known as Royal Dutch Shell plc, said he had also managed to keep the Dutch and British governments content. The company says both governments can expect to receive the same levels of corporation tax as they have in the past.

Mr Van der Veer spoke to Jan Peter Balkenende, the Dutch prime minister, late on Wednesday night after the deal had been put together and said his colleagues had contacted the "higher levels" of British government.

The company also seemed to have performed a fine balancing act in keeping its British and Dutch interests from falling out, even though all concerned insist this was never an issue.

Aad Jacobs, who will take the post of non-executive chairman of the new group until 2006, said there had been no arguments or rifts, although he conceded that "we have defended our own positions".

The new company will have its headquarters in the Netherlands, meaning there will no longer be a joint HQ at the old Shell Centre on London's South Bank. Shell said the move would not lead to job losses and would only involve the transfer of 200 jobs to the Netherlands.

The company will also be tax resident in the Netherlands. But directors at the group dismissed suggestions that the merger of the two holding companies, Royal Dutch Petroleum and Shell Trading and Transport, is, in effect, a Dutch "putsch".

Indeed, many insiders and observers said the company had taken on a more British flavour because of its primary listing in London, which will make it a FTSE 100 super-heavyweight.

NRC, the Dutch national evening newspaper, yesterday said fears of a British coup appeared to have been proved unfounded but added: "Inside the walls it is indeed British" - being a plc with its main listing in London and an Anglo-Saxon corporate structure.

The new company will be headed by a Dutch chief executive and a Dutch chairman but the understanding is that future appointments will be made on the basis of ability rather than any need to keep the Dutch or British side happy. Bankers who worked on the deal said the decision to incorporate the new company in the UK was driven by the desire to have a single board, with executive and non-executive board members sitting together, unlike in the Netherlands where they are divided.

If the new company structure is approved, there will be five executives on the board and 10 non-executives. Six of the non-execs will come from Royal Dutch while four will come from Shell Transport. There is no place for Sir Mark Moody-Stuart, who was in charge of Shell when oil reserves were being overbooked.

Sir John Kerr, the non-executive director who chaired the structural review, said the aim was to create an international company that in a few years would not even think about the country of origin in its board appointments.

Lord Oxburgh admitted that "new blood" on the board was the priority and that current non-executives would leave rapidly in the next two years.

The structure of the proposal would see Royal Dutch buy its UK peer but any mention of an apparent "no-premium" takeover is scotched by those close to the deal.

Royal Dutch currently controls 60 per cent of the combined group, with Shell Transport controlling the remaining 40 per cent.

After the move, which needs approval at April's annual meeting, to be held in the Netherlands, Royal Dutch shareholders would still own 60 per cent of the new company and Shell Transport shareholders the rest. But directors said there is no reason why this split in shareholding will not change in future, with some shareholders migrating to the UK listing. A Dutch legal expert flagged the newly unified company's access to acquisition currency as a key driver of the reforms - the company has operated at a clear disadvantage to its peers because it lacked the ability to make all-stock takeovers.

Scrapping its dual-head structure - which restricted Shell's ability to conduct all-paper deals - opened a critical new option in the search for oil and gas. However, the expert added that the company faced "significant tax issues. There are a lot of implementing issues that they have not spelled out".

The company is understood to have been in close contact with the Dutch tax office to map a path that as recently as last week Dutch media continued to suggest would be beyond it in terms of tax and fiscal obstacles.

And as yesterday's reserves news disappointment showed, the story of Shell's future is not just about corporate structure. It needed to find more oil and replenish its reserves.

Mr Van der Veer believed the Anglo-Saxon corporate structure is the answer.

"If you have a more simple structure, where you spend less time in lots of meetings, and with fewer executives, you make faster decisions," he said.

By IAN BICKERTON and JAMES BOXELL