Angry grannies and office politics could make Shell merger messy

HOME free! That’s probably the mood in the plushly-padded offices of the chaps running the soon-to-be-unified Royal Dutch Shell group after shareholders voted in favour of the deal, and US regulators decided that no charges should be laid over the overstated reserves fiasco.

But Slugcatcher reckons anyone saying that, or even thinking it, might be guilty of little premature speculation – for two reasons.

First, there is “the revenge of the grannies”.

Second, there is the small matter of how to grow the unified business after a decade of no growth.

The second issue is obviously the more important of the two. But the first is definitely the most fun.

According to he Slug’s weekend reading, a small army of ancient British shareholders are about to cop a very unpleasant surprise from the merger of Royal Dutch with Shell Transport and Trading.

While on the surface the merger looks like a terrific deal that creates a new mega-oil company likely to have a market capitalisation of around $US200 billion, and which washes away the sins of the old dual-structured business, the devil is in the detail. And one of those devils is a potential whopping tax bill for some unlucky investors.

London’s esteemed Financial Times reckons up to 3000 British shareholders in the Royal Dutch part of the business could face a collective tax bill of more than $US100 million – because they risk being deemed as having sold their shares into the merger, triggering capital gains tax.

The lucky blighters who owned Shell Transport shares get off scot-free because they haven’t sold.

Why this becomes “the revenge of the grannies” is that a few days before the Shell deal went through a British Government report referred to financial stress being suffered by investors in a business called Railtrack as “grannies losing their blouses”.

The Slug, with knowledge of the savage tendencies of ageing British grannies, would not want to be a Shell executive should a flotilla of them sail up the Thames and invade the Shell Citadel on Southbank.

Meanwhile, back at the real game, Shell chaps will be finding the euphoria of the merger and the decision to not prosecute in the US a short-lived thrill – although The Slug believes that any prosecution would have been a damned silly thing because it all came down to an argument over the timing of when to book reserves, not really a dispute over whether the oil and gas was there.

Time will tell how Shell handles its new-found corporate structure, and whether it can grow. For the next few months, at least, there is likely to be a fair amount of jockeying for positions of power inside the single entity.

That probably means a lack of focus on any big ticket opportunities that come along, and a focus of doing a few small deals to see how the internal wheels work.

From what’s been reported so far, the likely targets for growth will be in the sub-$US1 billion range, partly because of the need to get systems up to speed, and partly because asset values are at a peak with oil in the $US60 a barrel range.

But by the end of 2005, the pressure will be back on. The “grannies” will have got their tax bills, a deal or two might have been done, and the market will be expecting great things from the new-look Shell.

It had better deliver or even the once mighty house of Shell could find itself a takeover target with a very noisy rump of angry small shareholders stirring the pot in London.


Most read MARKETS