Plurality should not be posited without necessity. Royal Dutch Shell is acting in line with that advice from philosopher William of Ockham. On Monday, the oil company said it would ditch dual-class shares and move its tax residence from the Netherlands to the UK.
Shareholders who stay on board will benefit from the simpler structure. Payouts, especially buybacks, will be easier with a single share class.
Anglo-Dutch corporates have form for shifting allegiances in the past two decades. Relx, the old Reed Elsevier publishing business, became primarily British in 2015 and has outrun the FTSE 100 since. Unilever headquartered in London after shareholders rejected plans for a Dutch base.
The switches help London’s financial centre, which has lost business following Brexit. Shell’s decision wrung sour expressions from the Netherlands government and thrilled British officials.
One conspiracy theory is that Shell is moving to the UK to escape a tougher EU regime for enforcing corporate promises on carbon reduction. This summer a Netherlands court ruled that Shell must move faster to decarbonise.
Less controversially, the move will remove an organisational headache for Shell. Its A shares are mostly held by Dutch investors and its B shares by UK funds. Cash flow to pay B shareholders, free of Dutch or UK withholding tax, has to come from outside the Netherlands. That creates complications when the group holding company is Dutch.
Shell has had to focus buybacks on B shares, limiting their supply. Buying back the A shares can require a fiddly withholding tax refund.
The oil group has plenty of cash to return. Apart from a $2bn buyback announced in July, Shell has plans to pay out another $7bn from the sale of its Permian US onshore assets to ConocoPhillips. No doubt Shell will sell more oil assets as the energy transition continues.
Ironically, Sir Andrew Mackenzie blocked simplification of BHP’s dual-listed status in 2018 when he was chief executive of the big miner and activist Elliott was piling on pressure. Mackenzie will now oversee Shell’s streamlining as the company’s chair, even as BHP bases itself solidly in Australia.
Third Point is demanding the break-up of Shell. Extra share buybacks may mollify the activist, or at least reduce its traction with other investors. For this and other reasons, Shell’s simplification makes singularly good sense.
The Lex team is interested in hearing more from readers. Please tell us what you think of Shell’s plan in the comments section below.
Royal Dutch Shell: simpler structure means quicker cash returns
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