Investor Dan Loeb is pushing to break up energy giant Royal Dutch Shell as the company adopts renewable energy yet still continues to rely on fossil fuels.
The activist investor took a $750 million stake in Shell, which is roughly equal to 0.4% of the company. Loeb made the investment via his company Third Point LLC, which has just a letter to other investors advocating for a break-up of the Shell corporation.
The suitable backdrop for Loeb’s initiative is the earnings miss announced earlier today. The company announced adjusted earnings of $4.1 billion for Q3 2021, which is significantly higher compared with $955 million over the same period a year earlier but still lower than Q2 which brought in $5.5 billion. But the reason for the market’s disappointment was that the Q3 number was below analyst expectations, which were looking for $6 billion in earnings.
The reasoning is that, as Shell embraces sustainable operations (e.g., liquified natural gas, renewable energy sources), it would benefit the company to separate them into standalone entities.
And thus, Shell’s legacy of conventional energy practices, which include chemicals, refining and upstream operations, can remain as a separate business.
To support his statement, Loeb has pointed out that the past two years have been ‘difficult for Shell’s shareholders’. An order from a Dutch court that has been very well publicized to change the energy major’s business model, as well as significant dividend cuts have put pressure on the company.
In fact, the letter said, the company’s difficulties have been ongoing for the last two decades, with annualized returns of only 3%.
In response to the board’s wishes to ‘do it all’, Loeb argued that it’s impossible to be ‘be all things to all people’ and this approach has only made shareholders unhappy due to low returns and have made society equally unhappy due to expectations for more decarbonization efforts from Shell.
Nonetheless, Loeb remains confident that the energy giant will be successful both in bettering returns for its shareholders and reaching its climate goals.
Shell has already publicly acknowledged its willingness to engage in discussions with shareholders.