Daniel Loeb’s Third Point LLC has taken a large stake in Royal Dutch Shell RDS.A +3.69% PLC and is urging the oil giant to separate into two companies to retain and attract investors as many flee stocks seen as environmentally unfriendly.
The activist’s stake is worth well over $500 million, making it one of the Anglo-Dutch company’s largest investors, people familiar with the matter said.
Third Point believes Shell should consider creating two stand-alone companies: one with legacy businesses such as refining that would provide steady cash flow and another that houses renewables and other units requiring substantial investment, it said in a letter to its investors Wednesday that was viewed by The Wall Street Journal. It reasons that doing so would clarify the company’s strategy and appeal to different sets of investors who have been making competing demands of Shell.
Among the major oil companies, Shell has been faster-moving than peers such as Exxon Mobil Corp. when it comes to remaking its business and reducing emissions. It isn’t clear whether Shell will be receptive to the idea of separating into two companies. Third Point said in the letter the two sides have been in early discussions.
Shell is set to report its third-quarter earnings Thursday.
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Shell has a market value of nearly $200 billion. Third Point, which says in the letter that Shell is trading at a discount to its peers despite having a better collection of businesses, estimates that a new company including Shell’s liquefied natural gas, renewables and marketing businesses could be worth as much as the company in its current form.
The role of climate change in investment decisions has taken center stage this year, as many institutional investors pare holdings in pollution-heavy industries and activists urge companies to remake themselves faster. Upstart activist investor Engine No. 1 in May won seats on Exxon Mobil’s board with only a toehold position after arguing that the company was dragging its feet on preparing for a post-fossil-fuel world.
That same month, a Dutch court ruled that Shell must cut its emissions by 45% by 2030. Shell has said it plans to appeal the decision.