Shell Changes Approved by Shareholders

Royal Dutch Shell is to turn its back on the Netherlands and create a single share class in London, but what does that mean for investors?

James Gard 10 December, 2021 | 3:32PM
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Shell shareholders have voted overwhelmingly in favour of company proposals to exit the Netherlands, make the UK its tax residence and relocate its board to London. In a meeting on December 10, investors pushed the plans through with a 99.77% approval rate, much higher than the 75% needed to pass. The changes will take place in 2022.

Some 4.4 billion votes were cast in favour of the proposals, with 10 million voting against, the same amount of votes that were withheld. Retail investors were able to vote alongside giant pension funds and asset managers.

Share Class Clash

UK investors wanting to trade shares in Royal Dutch Shell have for years been faced with the dilemma of which one to choose. Unusually, the company trades on the FTSE 100 with two tickers, and is the only stock to do so.

But many would struggle to explain the difference. Now, these two share classes will become one as the company ditches the “Royal Dutch” and moves its headquarters to London. The move comes just weeks after activist investor Third Point revealed plans to split Shell up, though it hadn't specifically proposed this latest course of action. 

The current set-up is quite complex and the aim is to simplify this.

At the moment, Shell trades under tickers “RDSA” and “RDSB”, with only “A” shares subject to a 15% tax on dividends imposed by the Netherlands. “A” shares pay out dividends in euros and “B” shares in pounds sterling. By having a single pool of ordinary shares, Shell hopes to speed up its plans to buy back shares, which is one of the planks of its post-pandemic appeal to shareholders. Even under the new scheme, the shares will continue to be listed in London, Amsterdam and New York.

This matters a lot for income investors because Royal Dutch Shell pays out billions to shareholders like DIY investors, funds and pensions. In 2020, Shell cut its dividend for the first time since World War II, but has been trying to play catch-up since with raised dividends and share buybacks. Buybacks reduce the number of shares in issue, with the aim of boosting the share price, and are currently in fashion among large FTSE income payers like WPP and Unilever. We wrote about the trend in our recent top FTSE dividend round-up and we have explained more in a Q&A.

Climate Pressure

As the name suggests, Royal Dutch Shell has roots in the Netherlands and UK. Its headquarters is currently in The Hague but the shares are listed in Amsterdam and London. Shell will have its HQ in London from next year, while its chief executive and chief financial officer will move here too from the Netherlands. Crucially, Shell will move its tax residence to the UK, where ministers have received the news as a “vote of confidence” in British business.

Unilever, another company with Anglo-Dutch roots, threatened to go in the opposite direction and shift its base to the Netherlands – but reversed this after a backlash from big UK shareholders. The Dutch government is understandably not delighted by the news, describing it as an “unwelcome surprise”. Shell itself said that it is “proud of its Anglo-Dutch heritage and will continue to be a significant employer with a major presence in the Netherlands”.

Cynics might say Shell’s decision is not unrelated to the legal pressure the company is under in the Netherlands, where a court ruled its emissions cutting targets are not strict enough. As Morningstar oil analyst Allen Good explains, though, this move is “unlikely do anything to shield the company from recent lawsuits over emissions” - such is the global nature of the oil business and international treaties on carbon emissions. Companies of Shell’s size can’t use regulatory arbitrage even if the option was there. And Shell says the court ruling is still binding even after 2022's changes.

Shell’s chairman, Sir Andrew Mackenzie, said: “This resounding support from shareholders to amend Shell’s Articles of Association will enable a simplification of the company’s share structure and an increase in the speed and flexibility of capital and portfolio actions. The board believes that the simplification will strengthen Shell’s competitiveness and accelerate both shareholder distributions and delivery of its strategy to become a net-zero emissions energy business by 2050, in step with society.”

Morningstar’s Good says the proposals won’t have an impact on the company’s valuation. It retains its no-moat rating – downgraded from narrow – and has a 3-star rating. Shares have risen 35% this year as oil prices have soared, but Morningstar still values them at £19.40, above the £16.60 level they are trading at now. Shell claims a simpler structure will help make its climate transition progress smoother, but Good says the move is unlikely to have any meaningful impact.

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James Gard  is content editor for Morningstar.co.uk