Activist hedge fund Third Point calls for break up of Shell after taking $750m stake in energy giant

Shell accused of 'incoherent' strategy

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Shell accused of 'incoherent, conflicting' strategies
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Shell accused of 'incoherent, conflicting' strategies

The activist hedge fund Third Point, which is led by Daniel Loeb, is calling for the break up of Anglo-Dutch oil giant Shell having built up a stake in the firm worth nearly $750m.

Third Point is accusing Shell of having too many competing stakeholders trying to push the company in different directions, resulting in an "incoherent, conflicting" set of strategies as the firm seeks to appease multiple interests.

"Some shareholders want Shell to invest aggressively in renewable energy," Third Point's Loeb wrote to shareholders on 27 October. "Other shareholders want it to prioritise return of capital and enjoy the exposure to legacy oil."

The list of conflicting interests went on. He said he suspected that some parties within Shell seem "sentimentally" attached to its "super major" legacy.

abrdn says breaking up Shell could destroy benefits of fossil giant's integrated business model - reports

While some governments want Royal Dutch Shell's rapid decarbonisation, others want it to continue investing in oil and gas to keep consumer prices affordable, the hedge fund manager highlighted.

"Europe paradoxically wants both."

Despite these issues, Loeb stated that Shell was still an attractive choice for investors, but changes need to be made.

He accused the board of responding to conflicting interests with a "do it all" approach.

"Shell has ended up with unhappy shareholders who have been starved of returns and an unhappy society that wants to see Shell do more to decarbonise," said Loeb.

Third Point inititated a position with Royal Dutch Shell during the second and third quarters this year.

The hedge fund highlighted that the last two years have been "especially challenging" for Shell shareholders due to a major dividend cut and a well-publicised court case that ordered changes to the energy firm's business model.

"Stepping back further, it has been a difficult two decades for shareholders, with annualised stock returns of just 3% and decreasing returns on invested capital," said Loeb.

"However, despite the current sour sentiment, we see opportunity for improvement across the Board at Shell."

According to Third Point, Shell shareholders would benefit from a plan to "optimise" Shell's corporate structure, match its business units with unique shareholder constituencies who may be interested in different agendas, and allow each of its businesses to more "nimbly" react to market and policy developments.

Shell has acknowledged Third Point's investor letter, replying that it regularly reviews the company's strategy with focus on generating shareholder value.

"As part of this ongoing process, Shell welcomes open dialogue with all shareholders, including Third Point," it said, adding that it has had preliminary conversations with the New York-headquartered hedge fund and will engage with them.

Shell also stated that it set out its "Powering Progress" strategy earlier in the year and its energy transition strategy was supported by 89% of its shareholders at its annual general meeting in May.

On Thursday 28 October, the energy giant reported a total revenue of $61.6bn in the third quarter, an increase of nearly 40% year-on-year.

Despite Shell's record cashflow for the quarter, profits fell from $177m a year ago to a $988m loss this quarter. This was due to derivative losses in the Integrated Gas business more than offsetting progress in upstream oil and gas production, according to Hargreaves Lansdown.

Underlying profits, however, reportedly more than tripled to $4.1bn.

With calls for Shell's break-up ongoing, chief executive Ben van Beurden pledged a new 2030 target to halve the absolute emissions from its operations compared to 2016 levels on a net basis.

Meanwhile, Shell's finance chief Jessica Uhl said on Thursday that breaking up the oil giant into seperate companies might be financially compelling but would not work in reality, Reuters also reported.

Only 0.5% of $27trn global funds assets are Paris-aligned

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