Activist wants to split Shell. What is the chance of success?

Asia's Tech News Daily

Activist wants to split Shell. What is the chance of success?

Great is no longer the same as untouchable. Nowhere is this so clear, and the break so radical, as with the mastodons of the traditional fossil economy: the oil companies.

Just a few months ago, the court in The Hague forced oil and gas giant Shell to accelerate its sustainability. On the same day, ExxonMobil shareholders voted en masse for new board members with a ‘green’ profile. A few weeks earlier, the campaign of the Dutch investor front Follow This had received unprecedented support (30 percent of the vote) from Shell shareholders for a more sustainable strategy.

And this week, pension giant ABP, the fund of teachers and civil servants, surprised friends and foes with the decision to sell 15 billion euros in fossil investments, including all Shell shares. On Wednesday evening, it emerged that the American investment fund Third Point is committed to radically splitting Shell.

The common thread in this dynamic is the role of ‘small’ activists. The court case in The Hague was their job. The investor who ‘greened’ the top of ExxonMobil started with less than 0.1 percent of the shares. Follow This was not taken seriously in the beginning, it was that small. For a long time, the Fossilvrij pressure group was just a louse in ABP’s fur (530 billion euros in investments). Wall Street Journal for more than 500 million dollars (converted almost 430 million euros) in Shell shares. That is quite a lot, but meager compared to the value of all Shell shares on the stock exchange (200 billion dollars, or almost 172 billion euros).

Also read this interview with Mark van Ball from Follow This: ‘This time could go down in history as the tipping point for oil companies’

With 87,000 employees and a turnover of 156 billion euros, Shell is an indispensable link in the Dutch energy transition – from making its refinery in Pernis more sustainable to installing charging stations for electric cars.

Unrest and uncertainty

The intervention of Third Point is one out of the book of the activist shareholders. They thrive in unrest and uncertainty. The global economy is in a transition phase towards sustainable energy and green climate policy. Old wisdoms lose their validity. The cards are reshuffled. Will the value of Shell’s oil fields soon plummet? Or is the share price of sustainable energy producers skyrocketing?

Daniel Loeb, the foreman of Third Point, wants to capitalize on that. Here you can see a crucial difference between a regular investor like ABP and activist Third Point. With the sale of its fossil investments, ABP says: ‘it yields too little result to interfere with company policy’. Loeb says the exact opposite: militancy pays off.

Shell has to take into account so many different interests in this transitional phase that nobody gets their money’s worth

He therefore proposes that Shell break itself up into at least two new companies: one for oil extraction, refining and sales and one that will expand in sustainability, including liquefied gas (LNG). The rationale is that during this transitional phase, Shell has to take so many interests into account, from governments and judges to shareholders and activists, that nobody really gets what they want. Hence the unbundling plan, which, incidentally, elaborates on the policy of other energy companies, such as the German RWE and Eon. Long ago they split their activities into separate polluting and sustainable companies.

What Loeb sees as Shell’s weakness – all those different stakeholders – Shell itself sees as an absolute advantage. Shell has been in energy for 120 years, financial director Jessica Uhl said in a telephone press conference on Thursday. “There are few companies that can carry out the energy transition on this scale and at this speed.” CEO Ben van Beurden called Shell’s strategy coherent: traditional oil sales are financing the transition.

Following the judgment of the court in The Hague, Shell came up with a tightened strategy on Thursday to reduce its own CO .2to halve emissions by 2030 compared to 2016.

Chance of succeeding?

Shell is a British company and major shareholders like Third Point are taken seriously in the City of London. But does the activist investor have a serious chance of success? For activists, three conditions are critical to success. The company in which they invest must first of all be in a phase of uncertainty. Shell meets that condition. The concern is the center of (often contradictory) actions and demands. Shell is also changing itself: last month the company announced the sale of one of its largest oil fields for shale oil, Permian Basin in the US.

The second condition for success, for activist shareholders: slumbering discontent in the investment world. This is necessary to get enough investors to agree with their plan: pension funds, for example, and asset managers such as BlackRock, a major shareholder of Shell. Shell also satisfies this second condition. Investors have not forgotten the two-thirds dividend cut during the corona pandemic. That decision marked a break with Shell’s past as a ‘widows and orphans’ investment or ‘dividend aristocrat’. Investors could always rely on Shell’s dividend payments.

In this discontent among investors, a parallel can be seen with ABN Amro, the bank that in 2007 became the target of the activist financier TCI (The Children’s Investment Fund). At the time, investors complained about the changing strategy, high costs and the lagging share price of the bank. ABN Amro killed that. TCI’s action was followed by an unbeatable takeover bid from three international banks, including the Belgian-Dutch Fortis. The trio split ABN Amro and divided the activities among themselves.

Extra money beckons

The third condition for success is the prospect of hard cash for investors. At ABN Amro, that was the takeover bid. That yielded much more money than the price at that time. Third Point does not offer that bonus. It has only one plan, which Shell is rejecting at least for the moment. Third Point can of course make a proposal at the next shareholders’ meeting. But even if that succeeds, the plan still has to be implemented. It takes time. And how much will it bring investors?

Activist investors are ultimately also opportunists. With no prospect of success or money, they continue with other, more promising projects. Shell knows that too. The company wants to keep its financiers friendly. For example, the bulk of the sales proceeds from the Permian Basin (no less than 7 billion dollars) are distributed to investors.

It’s cash register at the pump.

Activist wants to split Shell. What is the chance of success?
Source link Activist wants to split Shell. What is the chance of success?

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