The perfect deal that keeps everyone happy

Oil group and its advisers manage to tread a careful line between Dutch and British sensibilities

By James Boxell in London and Ian Bickerton in Amsterdam

Given the disdain shown by Royal Dutch/Shell’s board to its existing 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 to do so.

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

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

The company and its advisers appear to have performed the magic trick of coming up with a structure that keeps everybody happy.

Investors are pleased that they have the corporate governance they were looking for, and that they will not suffer tax disadvantages on their dividends from the new deal. The advisers recom­mended that Dutch and British shares be split into A and В categories, each with their own domestic dividend.

Jeroen van der Veer, new chief executive of the combined group, managed to keep the Dutch and British governments on board.

The company says both governments can expect the same levels of corporation tax as in the past.

Mr van der Veer spoke to Dutch prime minister, Jan Peter Balkenende, late on Wednesday evening after the deal had been put together, and said his colleagues had made similar approaches to the “higher levels” of the British government.

The company also seems 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, 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 be headquartered in the Netherlands, meaning there will no longer be a joint HQ at the old Shell Centre on London's Southbank. The company will also be tax resident in the Netherlands.

However, directors at the group dismiss suggestions that the merger of the two holding companies, Royal Dutch of the Netherlands and Shell Trading and Transport of the UK, is in effect a Dutch “putsch”.

Many insiders and observers said the company had taken on a distinctly 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 ability. Bankers who worked on the deal say the decision to incorporate the new com­pany in the UK was driven partly by the desire to have a single board, with executive and non-executive board members sitting together. Non-executives and executives are divided in the Netherlands.

If the new company 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, the non-exec in charge of Shell at a time when oil reserves were being overbooked.

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

Lord Oxburgh admitted that “new blood” was the priority on the board and that current non-execs would move off the board in the next two years.

The structure of the deal will 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 controls 60 per cent of the combined company, with Shell Transport owning the remaining 40 per cent.

After the deal, which needs approval, Royal Dutch shareholders will still own 60 per cent of the new company and Shell Transport shareholders the rest.

However, directors say there is no reason why this split in shareholding won’t change in future with some shareholders migrating to the UK listing.

A Dutch legal expert with knowledge of the thinking behind the structural overhaul 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, the person said. 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, he added that the company faced “significant tax issues”. “There are a lot of implementing issues that they have not spelled out.”

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

Mr van der Veer believes 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.”