Third Point Wants To Split Shell In Two: Will It Happen?

Activist investor Third Point wants Shell to be split into "clean" and "dirty" companies. At the moment, the status quo looks the likely winner

James Gard 4 November, 2021 | 1:45PM
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Shell signage

In this era of sustainable investing, Europe's oil majors are under constant and intense scrutiny, and none more so than Royal Dutch Shell. Should fund managers engage with these companies to make them greener, or just sell them? One activist investor has come up with a radical solution to this issue: split Shell into two companies, one managing “legacy” assets like oil and gas and the other focused on renewable energy. This has been described variously as dividing the company into “good/bad” Shell, “clean/dirty” Shell or “legacy/green” Shell. Let’s look at the proposals in detail and what Morningstar analysts think of them.

The radical surgery proposal is being driven by US-based hedge fund Third Point, founded by prominent activist investor Daniel Loeb. It has built a stake in Shell with a view to profiting from an improvement in the company’s prospects. Third Point describes itself as a “special situations” investor that pushes for corporate change; it has a long history of effecting disruption at board level in companies like Yahoo, Sony, among others. Reports suggest that its stake in Shell could be worth up to $750 million. Third Point’s thesis is that Shell has tried and failed to please all of the competing demands placed on it and that has negatively affected its valuation. The long-term share price trend backs this up. Despite some strong gains in 2014 and 2018, and the Deepwater Horizon disaster that affected rival BP, Shell’s shares are still roughly at the same level they were at in November 2001.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
BP PLC ADR27.06 USD0.00Rating
Royal Dutch Shell PLC ADR Class A43.87 USD0.00Rating

About Author

James Gard  is content editor for Morningstar.co.uk