Shell basing itself in the UK is not a vote of confidence in the economy | Nils Pratley
It’s now 3-0 to the UK in terms of Anglo-Dutch members of the FTSE 100 index picking a single location in which to unify their corporate structures and tax domiciles. Shell is following publisher Relx, the old Reed Elsevier, which simplified in London so quietly, almost nobody noticed, and Unilever, where there was an almighty fuss because a Dutch-dominated board initially wanted to go wholly Dutch. The equivalent of a pitch invasion by UK shareholders, and then a replay, was required for the consumer goods giant to give the nod to the UK.
So is Shell’s decision a “clear vote of confidence in the British economy,” as Kwasi Kwarteng, the business secretary, claimed? Not really. One doubts Shell’s directors spent any time pondering the state of the UK economy. It’s really a question of Anglo-Dutch multinationals’ frustration with the Dutch system of applying a 15% withholding tax on dividends.
Back in 2005, the last time Shell tweaked its structure by incorporating in the UK with Dutch tax residency and two classes of share, it was probably assumed that the Dutch divi tax would eventually be abolished. If it had been, Shell’s A shares, which are liable and mostly held by Dutch investors, and the B shares, which are free of charges, could have been unified long before now.
But the withholding tax still stands and has become a more pressing complication given the sums Shell is currently throwing at buying in B shares, the preferred target for the same tax reason. On top of its regular distributions, the company will have $7bn (£5.2bn) to return next year from the proceeds of disposals. If half the pool of capital is effectively off limits, there is an effective speed limit of $2.5bn a quarter, which Shell could conceivably wish to exceed in future in an age of corporate demergers and disposals. Having one class of share makes life less clunky.
Unilever made a parallel point about freedom of manoeuvre in deal-making, but so, Kwarteng should note, did giant FTSE 100 miner BHP Billiton when it concluded that Australia is the place for it to be. It’s horses for courses, and London doesn’t always win these technical stand-offs.
None of which will do much to soothe anger in the Netherlands. The political noise will be intense, not least because of the symbolism of Shell shedding the “Royal Dutch” part of its name after 114 years. Chairman Sir Andrew Mackenzie, a Scot (and ex-BHP as it happens), will have to do more than post gentle videos on the corporate website explaining how only a handful of top jobs are affected. In the end, though, he should succeed. Choosing the UK is logical, even if it’s not for the reason UK politicians may claim.
The loose end that may yet cause trouble is the idea that Shell is fleeing litigation in Dutch courts, where a remarkable case last year ruled, in effect, that the company’s emissions-reduction targets weren’t merely inadequate but also illegal. The case itself is unaffected, and Shell says the latest iteration of its strategy is compliant (although it is appealing anyway). But might the company have had an eye on future legal challenges? It’s not allowed to say so, but one suspects the answer is yes.
But the divi complication is clearly the primary driver and, viewed from Shell’s boardroom, any last-minute attempt by the Dutch coalition government to abolish the tax will surely feel too late by about a decade. This issue is not new.
Boss of leveraged Cineworld ‘thrilled’ at return of audiences
It’s been a while since Mooky Greidinger, headline act at cinema group Cineworld, has been able to engage his default mode of ra-ra optimism, so you can’t blame him for seizing the current opportunity.
He’s “thrilled” that audiences are returning in significant numbers, says partnerships with the major studios, which looked wobbly at moments during lockdown, are “as strong as ever”, and describes the slate of upcoming film releases as “incredible”.
Jolly good, but the uncomfortable fact remains that Cineworld, rarely under-borrowed before Covid, is now extremely leveraged. At the last count, borrowings, including lease liabilities, were $8bn, which is a lot even when you’re the world’s second largest cinema operator and have a larger presence in the US.
The cliffhanger is whether Cineworld expects to get through without tapping shareholders (of which he and his family are the largest) for fresh equity. Free cashflow was positive in October, reports Cineworld, but that is not a definitive answer to the capital-raise question. The suspense can’t last for ever.