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One of Royal Dutch Shell’s biggest shareholders has dismissed activist hedge fund Third Point’s proposal to split the oil major into separate companies, saying it would be too complicated and unlikely to add value for long-term investors.
Iain Pyle, a fund manager at Abrdn, said that while breaking up the company might look like an “interesting proposition” on a spreadsheet, it would be hard to do because of Shell’s integrated operations.
“People are fully aware of how difficult it would be to break up Shell,” he said. “Just because Third Point says it makes compelling financial logic doesn’t mean it will happen.”
Abrdn, which ranks among Shell’s top 10 shareholders according to data provider CapitalIQ, is the first big investor to comment publicly on the proposals to split the energy group to generate better value from the energy transition.
Third Point, run by activist investor Daniel Loeb, wrote to its investors on Wednesday saying that dividing Shell into a legacy oil, refining and chemicals company, and a separate gas, renewables and marketing business would probably lead to “an acceleration of CO2 reduction as well as significantly increased returns for shareholders”.
Pyle, who had not yet spoken to Third Point, said he agreed with the hedge fund’s view that there was “hidden value” in Shell that was not being recognised by the market. “Drawing attention to that and getting Shell to better communicate that is a good thing,” but splitting the company could destroy the benefits of Shell’s integrated business model, he said.
Shell is under fire on several fronts after ABP, the Dutch pension fund, announced plans earlier in the week to divest all its holdings in fossil fuel companies, including Shell, because it saw insufficient opportunities to affect the energy transition through those businesses.
The Anglo-Dutch energy major argues that its integrated offering as an oil and gas producer, refiner, LNG supplier, power provider and fuel retailer gives it a unique ability to help its customers, including some of the world’s most carbon-intensive businesses, to reduce their emissions.
“I believe we have an incredibly coherent strategy,” Ben van Beurden, Shell chief executive, said on Thursday following the company’s third-quarter results, when he warned that replacing long-term shareholders with hedge fund investors could derail the energy sector’s transition plans.
Shell’s integrated collection of assets allows it to do things that would be “very hard to replicate if [we] were just indeed split up into a number of separate companies”, he said, adding that Shell’s investments in clean energy were largely funded by the legacy oil and gas business.
Another fund manager at a top 20 shareholder, who declined to be named, said he supported Shell’s strategy and did not see what a split would achieve other than a potentially higher stock market valuation for the spun-off renewables business.
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“I am not sure the renewables business is at the stage where it is ready to be a standalone business without another source of financing,” he said. “There is a lot of sense in keeping the same pool of engineering talent and letting the cash-generative business support the other.”
Splitting the traditional oil business from the greener division would be “difficult because they are very intertwined and potentially very costly to do”, he added. “To achieve the decarbonisation goals we want . . . it makes sense for them to be an integrated energy business.”
