Activist Fund Third Point Pressures Royal Dutch Shell to Split..."Fossil Fuels and Green Energy Must Be Separated"

"Increase Investment Share in Eco-Friendly Energy Sector"
Shell Reports $21.7 Billion Net Loss Last Year...Concerns Over Management Deterioration

[Image source=AP Yonhap News]

[Asia Economy Reporter Hyunwoo Lee] Third Point, a U.S. activist hedge fund, has demanded that Royal Dutch Shell (hereafter Shell), a global major oil company, undergo corporate spin-off. They have ordered Shell to separate its core fossil fuel business and its new eco-friendly energy business into separate companies and to increase the investment ratio in the eco-friendly energy sector. Shell suffered huge losses last year due to decreased fossil fuel demand caused by the COVID-19 pandemic and carbon neutrality policies in various countries.

According to the Wall Street Journal (WSJ) on the 27th (local time), Third Point revealed in a letter sent to investors that it is demanding a corporate spin-off from Shell. In the letter, Third Point stated, "Shell must separate its fossil fuel business division and eco-friendly energy business division into separate legal entities," and added, "Only by increasing the investment ratio in the eco-friendly energy division through a corporate spin-off can the company clearly communicate its strategy regarding eco-friendly policies to investors."

After recently increasing its stake in Shell to over $500 million (approximately 586 billion KRW) and becoming a major shareholder, Third Point has been persistently pressuring management to increase the proportion of the eco-friendly energy business. They argue that clinging only to the fossil fuel sector, which is gradually becoming less viable, could further worsen the business environment.

In fact, Shell recorded a net loss of $21.7 billion in 2020 as oil demand dropped by more than 25% compared to the previous year due to the COVID-19 pandemic. In May this year, a Dutch court ordered Shell to reduce its carbon emissions by 45% by 2030 compared to 2019 levels, labeling the company as a major contributor to global warming.

The demand to spin off the eco-friendly energy division as a separate brand is reportedly supported by other major shareholders of Shell as well. Christian Malek, head of JP Morgan’s Oil & Gas division, explained, "Investors also oppose the operation of fossil fuel and eco-friendly sectors within a single company and support the approach of separately promoting low-carbon businesses to increase corporate value."