Investors in London and The Hague voted to back unification of the Royal Dutch Petroleum Company and Shell Transport and Trading, triggering an overhaul of the group’s corporate governance structures.
Shell hopes the unification of its Dutch and British parent companies, planned for July 20, will help streamline its management structure, whose complexity was blamed for a damaging oil reserves overbooking scandal last year.
Royal Dutch/Shell, the third-biggest oil company in the world by market capitalisation, announced plans last October to move to a more traditional single-board structure with one chairman and one chief executive, scrapping its current dual-board arrangements based in Britain and the Netherlands.
Investors saluted news of the merger, with shares in Shell rallying 2.23 per cent to 539.75p in London trading, as dealers took positions in expectation of approval leading to portfolios having to be rebalanced by passive funds.
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Shell is at present 60 per cent owned by the Royal Dutch Petroleum and 40 per cent by the Shell Transport and Trading Co.
Executives of the operating group are drawn from the boards of each holding company.
The unified firm, to be named Royal Dutch Shell Plc, will have clearer reporting lines and has pledged to be more responsive to shareholders.
The merged company will have its headquarters in The Hague but have its primary listing in London. When it starts to trade, it will have a market capitalisation of around £110 billion.
Following the unification, Shell’s weighting in the FTSE 100 share index is expected to more than double, creating a wave of buying from index-tracking funds.
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Goldman Sachs said it expected £3.6 billion of extra buying interest, which would offer significant support for the shares.
The existence of a single Shell share could also help the group play a bigger role in oil industry consolidation. Peter Voser, the company’s chief finance officer, told a German newspaper earlier this month that the restructuring would allow Shell to use its shares as a currency for acquisitions.
Royal Dutch/Shell has struggled to win back investors’ trust after admitting between January 2004 and February this year that it had overstated its proved reserves of oil and gas by almost 6.0 billion barrels, and that senior executives were aware of problems long before they were made public.
US regulatiors fined the company $160 million and three Shell executives, including former chairman Philip Watts, were ousted.
Jeroen van der Veer, the former chairman of the twin-headed group, will be chief executive of the merged group, while fellow Dutchman, Aad Jacobs, the former chairman of the supervisory board of Royal Dutch, will be non-executive chairman.
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Some shareholders, however, expressed anger at an £80 million tax bill that will follow oil giant’s overhaul, and they accused the board of “hanging them out to dry” by devising a scheme to unify its Dutch and British assets that leaves many facing large losses from capital gains tax.
British investors who hold shares in the Dutch side of the business will have to pay capital gains tax of 40 per cent by law when their stock is converted into that of Royal Dutch Shell.
Shell chairman Lord Oxburgh said the company sympathised with shareholders but its hands were tied and it could only urge them to seek help and financial advice.
Peter Hatfield, who worked for Shell for 33 years, told the meeting: “Shareholders don’t need this help. They need the cash to pay the capital gains tax. They didn’t ask for the scheme but now they are going to be stuck with the bill.”
Another private shareholder complained: “Less than 1 per cent of this company has been left to hang out to dry and are faced with a very substantial capital gains tax demand and nothing to help them.”
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Many shareholders said that they were concerned that the tax implications might affect their pension funds.
Earlier the meeting was disrupted by environmentalists and representatives of communities that live close to Shell plants and pipelines in countries including Nigeria, Russia and the United States.
A representative from South Africa presented Lord Oxburgh with a miniature coffin when claiming Shell’s refinery in Durban had a detrimental impact on the health of communities close by.
Shell Transport and Trading and Royal Dutch were each founded in the 19th century.
The group’s present structure dates back to 1907 from the merger of Royal Dutch, formed in the Netherlands to develop oil fields in Asia, and Shell. The latter company began life as a small family shop in London selling sea shells before growing into an import-export business shipping oil to east Asia.