Professor David Elmes, Head of the Global Energy Research Network
at Warwick Business School, said:
"Shell’s dual share structure arose from when Royal Dutch Shell
of the Netherlands and Shell Transport & Trading were brought
together in 2005. But a dual structure does make it
less clear what an investor is investing in, and can expect
payments from.
"In particular, Shell is using share buybacks as a way to return
money to investors and so investors might wonder which shares are
being purchased, is it fairly split, etc. While Shell would
argue this has always been done in a fair and transparent way,
investors might see it as just more complicated than at other
firms.
"Probably a more important driver is that Shell is starting to
make a shift from fossil fuels to net-zero emissions
businesses. This will involve decreasing investment in one
part of the firm and increasing it in another part. They
have recently been challenged by Third Point, an activist
investor, that they should split the firm into a legacy fossil
fuel firm that returns funds to shareholders from producing oil,
and a more net zero firm that raises its own capital from
markets.
"Shell have replied that it’s both the funds from declining
fossil fuel activities and their transferrable capabilities that
will allow them to be successful in making the transition as a
single firm.
"At the heart of it, it’s a typical activist shareholder call to
return funds to shareholders for shareholders to invest
elsewhere, rather than for the company management to invest in
transforming the business.
"Shell is proposing to buy back $9Bn of shares in the year ahead,
partly driven by the sale of assets in the US. But they
have resisted Third Point’s call to split the
company. Unifying the share structure is a step to make this
whole process of transforming the company more transparent and
simpler for shareholders."
