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Activist investor buys $500m stake in Shell and demand it splits in two to focus on renewable energy

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Billionaire hedge fund manager Daniel Loeb (pictured), head of Third Point LLC, has acquired $500million in shares of Royal Dutch Shell PLC

Billionaire hedge fund manager Daniel Loeb (pictured), head of Third Point LLC, has acquired $500million in shares of Royal Dutch Shell PLC 

A billionaire hedge fund manager has acquired a large stake in Royal Dutch Shell PLC and is demanding that the oil major to separate into two separate companies.

Daniel Loeb’s Third Point LLC is pushing for the separation to attract new investors and hold on to current ones as many have sold their shares over concerns that Shell is not environmentally friendly.

According to The Wall Street Journal the activist hedge fund’s stake in Shell is worth more than $500million and is one of Shell’s largest investors. 

Loeb and his firm have reportedly been pressured to reduce fossil fuel investments and pivot to renewable energy sources as concerns about climate change increase.

In a letter obtained by The Journal on Wednesday, Third Point asked the Anglo-Dutch business to consider dividing their company into two stand-alone entities. 

One would include Shell’s legacy businesses – such as refining, which is the industrial process of removing unwanted elements in oil – and provide a steady cash flow while the other would house renewables and other units needing more investment. 

Third Point explained that the move would clarify Shell’s strategic direction as more focused on clean energy, thus appealing to different sets of investors who would otherwise be helping competitors.  

In a letter Third Point asked the Anglo-Dutch business Shell to consider dividing their company into two stand-alone entities. One would include Shell's legacy businesses - such as refining - and provide a steady cash flow while the other would house renewables and other units needing more investment

In a letter Third Point asked the Anglo-Dutch business Shell to consider dividing their company into two stand-alone entities. One would include Shell’s legacy businesses – such as refining – and provide a steady cash flow while the other would house renewables and other units needing more investment

JP Morgan analyst Christyan Malek said shareholders should welcome the suggestion. ‘Investors have generally pushed back against the hybrid model and are looking for ways to see these companies crystallize value (by carving out lower-carbon businesses),’ he said, as reported by The Journal.

Shell also wouldn’t be the first one to make such a move. European oil companies such as Eni SpA in Italy and Repsol SA in Spain have already considered dividing their lower-carbon operations to attract new investors.

Shell said on Wednesday that it ‘regularly reviews and evaluates the company’s strategy’ and has an open mind towards suggestions by its shareholders, which includes Loeb and Third Point. 

Shell also noted that its current strategy was one endorsed by many of its shareholders through a vote earlier this year. The results of that vote will be reported when Shell releases its third-quarter earnings on Thursday. 

According to The Journal, Shell has a history of making speedier adjustments to its business model in order to reduce emissions than other major oil companies, such as Exxon. 

Earlier this year Shell announced plans to speed up its shift to low-carbon energy by reducing oil production and increasing its investments in other areas, such as biofuels and electric-vehicle-charging infrastructure, according to The Journal.

Third Point's suggestions come after Exxon shareholders elected a third director nominated by activist hedge fund Engine No 1 to the energy company's board. The new board member faces an insular corporate culture renowned for slow-to-change ways (Pictured: ExxoxMobil's Baton Rouge refinery in Louisiana)

Third Point’s suggestions come after Exxon shareholders elected a third director nominated by activist hedge fund Engine No 1 to the energy company’s board. The new board member faces an insular corporate culture renowned for slow-to-change ways (Pictured: ExxoxMobil’s Baton Rouge refinery in Louisiana)

However, the shift will no doubt prove to be challenging because a move towards cleaner energy involves investments in areas with potentially lower returns and less competitive advantages. 

Yet the new strategy has reportedly failed to excite investors who said that uncertainties about the transition have made it difficult for them to predict future profits and invest accordingly. 

Plus, although Shell stock has risen more than 30 percent this year, it is little-changed over the past two decades. The shares saw a nearly four percent increase in recent months but only after the Journal reported on Third Point’s stake.

Oddly enough, back in May when a Dutch court ruled that Shell must cut its emissions 45 percent by 2030 the company said it had plans to appeal the decision.  

Third Point’s suggestions come after Exxon shareholders elected a third director nominated by activist hedge fund Engine No 1 to the energy company’s board, extending the investment firm’s upset victory at the top American energy corporation.   

Activist investor hedge fund Engine No 1 scored another victory Wednesday when shareholders elected Alexander Karsner (pictured), a strategist at Google-owned Alphabet Inc, to Exxon's 12-member board of directors

Activist investor hedge fund Engine No 1 scored another victory Wednesday when shareholders elected Alexander Karsner (pictured), a strategist at Google-owned Alphabet Inc, to Exxon’s 12-member board of directors  

Gregory Goff

Kaisa Hietala

The win comes after Engine No 1  succeeded in electing Gregory Goff (left) and Kaisa Hietala (right) to the Exxon board last Wendesday following a pitched battle with other shareholders

Strategist at Google-owned Alphabet Inc Alexander Karsner joined fellow Engine No 1 nominees Gregory Goff – a former chief executive officer at petroleum refining company Andeavor – and environmental scientist Kaisa Hietala on Exxon’s 12-member board of directors.

Chief among the firm’s objectives are greater investments in clean energy to better reach emission reduction goals as well as an overhaul of management compensation incentives.

The company’s response to environmental criticisms ‘has not been well done,’ Burns said, adding: ‘That’s one of the thing we have to work on.’

He also noted Exxon’s investments in carbon capture and storage technologies. Burns was one of the directors who secured a seat last week.

Exxon Chief Executive Darren Woods in a statement: ‘We look forward to working with all of our directors to build on the progress we’ve made to grow long-term shareholder value and succeed in a lower-carbon future.’ 

Exxon’s stock was up .79 percent at the closing bell Wednesday. 



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