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The Wall Street Journal: Shell Indicates Intention To Buy Out Shell Canada

October 23, 2006 5:39 a.m.

LONDON — Royal Dutch Shell PLC said it would offer to buy out minority shareholders in its Canadian affiliate for about C$7.7 billion, or $6.85 billion, representing the latest effort in the oil giant’s long-running restructuring. The move would also solidify its growing position in Canada, where it and a handful of other companies have invested billions in heavy, unconventional oil deposits.

Shell said it had approached the board of Shell Canada Ltd., indicating its intention to offer shareholders C$40, or about $35.60, cash per share for the approximately 22% interest in the Canadian unit that the Anglo-Dutch parent company doesn’t already own.

But the roughly 22% premium Shell is offering may not be rich enough to persuade the Canadian unit’s sometimes-fiercely independent shareholders to sell out without a fight. Shell Canada shares traded at $32.80 a share on the Toronto Stock Exchange Friday.

In a sign that Shell is bracing for possible difficulties in the bid, it asked Monday that Shell Canada establish a special committee of independent directors to supervise a formal, outside valuation and to review and make a recommendation related to the Shell offer. Shell said it might not pursue the offer if it didn’t win the support of the Canadian board. Shell, headquartered in the Hague, Netherlands, said any offer would be conditioned on obtaining more than 50% of the outstanding shares held by minority shareholders.

Shell has suffered a number of setbacks over the years trying to put together big acquisitions in North America, and the Shell Canada bid could serve as a test case for whether the company’s dealmakers have learned lessons from their earlier mistakes. In 1985, Shell rankled U.S. shareholders in what many considered a poorly executed offer for full ownership of its main American unit, Shell Oil. In 2001, Shell lost a high-profile bidding war for U.S. natural-gas producer Barrett Resources Corp.

A smooth buyout of the Shell Canada stake could go a long way in convincing shareholders that Shell chief executive Jeroen van der Veer has made progress streamlining Shell’s once-cumbersome corporate structure. It would also be the first big deal under Shell’s new non-executive chairman, former Nokia chief executive Jorma Ollila.

Mr. van der Veer was named to the top post at Shell in 2004 amid a scandal over energy-reserves accounting. He has led a dramatic shake-up of the company, consolidating its two boards and creating for himself a U.S.-style CEO role. Amid high oil prices, he has also outspent his Big Oil peers investing in promising but unconventional sources of hydrocarbons.

One of Shell’s favorite regions for growth has been Canada. Shell is a leader among the handful of big oil companies that have boosted investment in the country’s heavy oil and tar-sands reserves. The deposits are much harder and more expensive to exploit than conventional oil, but in today’s high-oil price environment, they have made economics sense.

Shell Canada has built a substantial position in the country’s oil sands, and is expanding production. The parent company, meanwhile, has spent handsomely on new leases in Canada independent of its stake in Shell Canada.

“Our proposal should create the opportunity for the group to build further on a strong position in Canada, using the strengths that only a company of our global scale can bring,” Mr. van der Veer said in a statement.

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