Royal Dutch Shell has dealt an “unpleasant surprise” to the Netherlands by unveiling plans to shift its headquarters to London, in a historic move claimed as a vote of confidence by the UK.
The oil major is to ditch its “Royal Dutch” prefix and be known only as Shell for the first time in more than a century, basing itself in Britain for tax purposes and ending its complicated dual share structure.
Officials in The Hague are now reportedly launching a last-ditch effort to change tax rules in a bid to persuade Shell to stay.
The company was formed in 1907 through the combination of the Royal Dutch Petroleum Company and its British rival Shell Transport and Trading Company. It has been run since then through a sprawling joint structure which critics say makes it harder to strike deals or react quickly to changing circumstances.
Shell now intends to scrap this model entirely, combining its Dutch “A” shares and UK “B” ones into a single class listed in Amsterdam, London and New York.
The business’s tax base will shift to Britain and nine senior staff will relocate to London, including its chief executive, Ben Van Beurden, and chief financial officer, Jessical Uhl.
Although Shell vowed to maintain a large presence in the Netherlands, including its global upstream business in the Hague, the proposals were greeted with dismay.
Stef Blok, economic affairs minister for the Netherlands, said: “We are unpleasantly surprised by this. The cabinet deeply regrets this intention.”
Dutch officials from prime minister Mark Rutte’s caretaker government are now trying to build a parliamentary majority to scrap a 15pc “withholding tax” on dividends in a bid to convince Shell to stay, the Financial Times reported.
Mr van Beurden has previously criticised the tax and cited it as a potential reason to exit the country. Mr Rutte attempted to abolish it in 2018 before giving up in the face of domestic opposition.
In addition to allowing its investors to avoid this bill, the headquarters move will allow Shell to increase share buybacks beyond a cap imposed as a result of its dual structure.
Shell said that it will also make dealmaking easier – a crucial consideration as it adapts to a low-carbon world and races to meet a target for net zero emissions from its operations by 2050.
The move comes as Shell faces pressure from Third Point, an activist investor run by Wall Street billionaire Dan Loeb, to break up its business.
It added that the change could lead to a one-off payment of up to $400m (£298m) in Dutch corporation tax.
Sir Andrew Mackenzie, Shell’s chairman who took the role six months ago, said the shake-up would increase the flexibility of the business as it embarks on a historic shift towards low-carbon energy in the coming decades.
He said: “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 company.”
The overhaul was broadly welcomed by investors and analysts.
Adam Matthews, chief responsible investment officer at the Church of England’s £3bn pension fund, said: “If this decision will enable the company to be more agile in executing its transition to net zero and strengthening shareholder rights, then it should be viewed positively.”
A top 10 shareholder added: “Simplifying the structure is a positive step as it removes an unnecessary complexity and isn’t hugely expensive to achieve in the context of such a large business.”
Shell was run through two separate boards in the UK and the Netherlands until 2005, when the entire business was consolidated under London-incorporated Royal Dutch Shell Plc following a scandal surrounding overstated oil reserves.
The firm remained headquartered and registered for tax purposes in The Hague, however, and opted for the dual-class share structure it is now seeking to abolish.
Kwasi Kwarteng, the Business Secretary, said on Twitter:
Welcome news @Shell is proposing to relocate its Group HQ to the United Kingdom as part of their plans to accelerate the transition to clean energy. A clear vote of confidence in the British economy as we work to strengthen competitiveness, attract investment and create jobs ??
— Kwasi Kwarteng (@KwasiKwarteng) November 15, 2021
The move has echoes of fellow Anglo-Dutch company Unilever’s decision to consolidate its business in London last year, an about-face that followed a revolt by British shareholders over previous plans to relocate to Rotterdam.
Biraj Borkhataria, an analyst at RBC Capital Markets said the current dual class share structure had limited Shell to paying dividends of only $2.5bn (£1.9bn) per quarter but the changes suggested an intention to return as much as $5bn to shareholders in future.
Shell’s announcement comes less than a month after Third Point revealed it had built a stake in the energy giant.
Mr Loeb’s fund has called for a breakup of the company, which he said should put its oil and refining operations into a separate business focused on returning cash to shareholders.
This would allow it to invest in renewables, liquified natural gas and a global network of electric car charging points.
In a circular to shareholders, Shell warned it could be punished financially for its attempt to relocate to the UK, with the Dutch parliament weighing an “exit tax” for companies that leave the country.
The proposal has been described as potentially unlawful by the Dutch Council of State, which advises on legislation, but is still being pushed by lawmakers from several parties.
Shareholders will be asked to vote on the overhaul either on or before December 10, a company spokesman said.
The change requires 75pc approval and would come into effect next year.
“A” shares in Shell rose 2.14pc to £16.76.
