Shell (RDS.A) Shareholders Overwhelmingly Agree on UK Shift
Royal Dutch Shell (RDS.A) shareholders have given their overwhelming backing to plans for consolidating its dual headquarters in London over The Hague. On Friday, some 99.8% of the 58% votes cast agreed to Shell’s special resolution to become a single United Kingdom (“UK”) entity.
Floated last month, the proposal to become a fully incorporated UK company is Shell’s first major corporate overhaul since 2005, when it moved to a single capital structure, creating a new parent company, Royal Dutch Shell plc. The original Royal Dutch/Shell Group resulted from the 1907 alliance between U.K.-based Shell Transport and Trading Company and the Netherlands-based Royal Dutch Petroleum Company, with a 40% and 60% stake in the group, respectively.
However, both companies maintained their separate and distinct identities. The unification plan proposed in 2005 by the boards of both the companies was completed in 2006, resulting in one parent company, Royal Dutch Shell plc. Reflecting the 60:40 ownership structure of the group before the unification, Royal Dutch Petroleum Company’s shareholders were given a 60% stake in the new parent company through class A shares (domiciled in the Netherlands), while the old Shell shareholders were given a 40% stake through class B shares (listed in the UK).
Following November’s decision to abandon its dual-listed structure and the establishment of a new legal entity in the UK, the company will change its name to just Shell Plc, stripping the “Royal Dutch” part and ending its relationship with the Netherlands that dates back to 1890, when the Royal Dutch Petroleum Company was formed. Expectedly, the Netherlands government at that time said that it was “unpleasantly surprised” by Shell’s plans to cancel its Dutch listing, following the footsteps of consumer goods giant Unilever UL last year.
In 2020, the packaged food behemoth too ditched its dual Anglo-Dutch legal structure and picked London over Rotterdam as the location of its headquarters. Unilever cited the coronavirus pandemic as a major determinant in opting for a single company structure in Britain as it would provide more leeway for mergers and acquisitions.
Eventually, UL was registered as a fully British entity a year ago, ending its nine-decade run as a hybrid company. Unilever, though, kept its food and beverage division's head office in Rotterdam despite moving out its corporate base.
Coming back to Shell, the relocation of its domicile to London is unlikely to cause a massive impact on the Dutch state revenues. But the move does raise some red flags regarding the country’s attractiveness to multinationals. Both Shell and Unilever had urged the government to scrap a dividend tax on big companies that they don’t have to pay in Britain. Shell was also becoming vulnerable to activist investors in the Netherlands after a landmark court ruling earlier this year asked the oil and gas major to cut emissions 45% by 2030 compared with the 2019 levels.
In an apparent attempt to soothe the Dutch nerves, the energy biggie assured that just a few management posts would shift to London. On the other hand, Britain welcomed Shell’s exercise, citing it as a “clear vote of confidence in the economy” even after its departure from the European Union.
For investors, it is seen as a positive move as it simplifies the structure and offers greater strategic flexibility. This assumes extra importance after Third Point — Daniel Loeb’s activist hedge fund that has a $500 million stake in the company — recently pursued a breakup of Shell into multiple businesses, arguing that this could unlock significant value. A new setup with a simplified business would also mean a higher ordinary share count and a possible increase in buyback authorization.
Zacks Rank & Stock Pick
Shell currently carries a Zacks Rank #3 (Hold).
Some better-ranked players in the energy space are ConocoPhillips COP and Chesapeake Energy CHK. Both the companies sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
ConocoPhillips has a projected earnings growth rate of 717.5% for the current year. The Zacks Consensus Estimate for COP’s current-year earnings has been revised 17.2% upward over the past 60 days.
ConocoPhillips beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 13%. COP shares have gained around 72.3% in a year.
Chesapeake Energy has a projected earnings growth rate of 121.5% for the current year. CHK's consensus estimate for the current year has been revised 16.8% upward over the past 60 days.
Chesapeake Energy beat the Zacks Consensus Estimate for earnings in three of the last four quarters. The stock has a trailing four-quarter earnings surprise of roughly 23.1%, on average. CHK shares have rallied around 48.2% in a year.
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Unilever PLC (UL) : Free Stock Analysis Report
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