Shell's Dutch exit comes with legal side benefits - Reuters

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The Shell logo is pictured in Wesseling near Cologne, Germany, July 2, 2021. REUTERS/Thilo Schmuelgen

LONDON, Nov 15 (Reuters Breakingviews) - Ben van Beurden is off. Royal Dutch Shell’s (RDSa.L) chief executive said on Monday he was proposing to move the $170 billion oil giant’s headquarters, its corporate tax residency and himself from the Netherlands to the United Kingdom. Though van Beurden has sound reasons to make the switch, the implied snub to his Dutch compatriots may be a side benefit.

Shell’s exit follows Unilever’s (ULVR.L) decision last year to locate its head office in the United Kingdom. But the Anglo-Dutch consumer giant was dismantling its twin holding companies; Shell had already done that in 2005, when it chose the UK for its corporate base and primary stock market listing, while being tax-resident and headquartered in the Hague. To avoid hitting non-Dutch shareholders with the country’s withholding tax, Shell issued them with B shares while investors in the Netherlands received A shares.

Shell complains this makes its corporate structure cumbersome. That didn’t prevent it from completing a $70 billion swoop on Britain’s BG Group in 2016. Still, the arrangement complicates share buybacks, as repurchasing the A shares means paying Dutch withholding tax. As van Beurden returns capital to shareholders with the help of high oil prices the number of B shares is dwindling.

The rejig may also yield energy transition dividends. Van Beurden has not set targets for wind and solar energy or slashed oil production, meaning Shell may at some point need to bulk up in a growth area like hydrogen. That would be easier to pull off with a single class of shares. So would merging with a rival like BP (BP.L) and splitting off legacy fossil fuels, as activist investor Dan Loeb recently suggested.

Then there’s the recent Dutch court ruling obliging Shell to slash its annual emissions by 45% by 2030. The company says it will do that regardless of where it’s based. But its own target only applies to the fraction of its 1.6 billion tonnes of annual emissions that come from its own operations, rather than those produced by its customers.

The departure and loss of the Dutch “royal” label will win Shell few friends in its former home. But with the Dutch government in post-election limbo and a parliamentary proposal to tax departing conglomerates stalled, the downside at least for now seems limited. Moreover, given Shell’s recent treatment by Dutch authorities, van Beurden may not mind too much if anyone takes offence.

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CONTEXT NEWS

- Royal Dutch Shell said on Nov. 15 it would seek shareholder approval to change its corporate structure in order to unify its two classes of shares. The company will also shift its tax residence to the United Kingdom.

- Shell is currently incorporated in the UK but has Dutch tax residence and a dual-class share structure. It adopted that approach in 2005 after combining Koninklijke Nederlandsche Petroleum Maatschappij and The Shell Transport and Trading Company under a single parent company.

- Shell said a unified share structure would allow it to compete more effectively by allowing for an acceleration of share buybacks, as there will be a larger single pool of ordinary shares that can be bought back.

- It also said the move would “strengthen Shell’s ability to rise to the challenges posed by the energy transition, by managing its portfolio with greater agility”.

- Following the simplification, the company said that shareholders would continue to hold the same legal, ownership, voting and capital distribution rights in Shell. The shares will continue to be listed in Amsterdam, London and New York, and remain a member of the FTSE UK indexes. Shell said it was “fully expected” that AEX index inclusion would be maintained.

- Shell anticipated it would no longer meet the conditions for using the Dutch designation “Royal” following the proposed change. The Board expects to change the company’s name from Royal Dutch Shell plc to Shell plc if shareholders agree.

- Amsterdam-listed Shell shares were trading at 19.8 euros, up 2.4%, as of 0900 GMT on Nov. 15.

Editing by Peter Thal Larsen, Karen Kwok and Oliver Taslic

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.

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