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October 28, 2021
7 minutes read

Activist Investor Dan Loeb Pushes For Breakup Of Oil Giant Shell

Dan Loeb, an activist hedge fund investor, has picked his latest fight with Royal Dutch Shell (AMS: RDSA), the oil and…

Dan Loeb, an activist hedge fund investor, has picked his latest fight with Royal Dutch Shell (AMS: RDSA), the oil and gas giant. His hedge fund, Third Point, has bought a sizeable stake in Shell and is calling for it to break up into two separate businesses as the best forward strategy.

In its latest shareholder letter, Loeb’s Third Point revealed that it’s built a significant position in Shell, whose shares are listed on the Amsterdam stock market. Though the size of the stake was officially undisclosed, a Bloomberg report pegs it at $750mn, equivalent to a 0.4% stake.

Loeb argues that Shell is struggling from being swayed in different directions from competing shareholder camps. The first is the camp wanting to invest aggressively in renewable energy. The second is the camp wanting to invest in oil and gas to keep energy prices affordable amid major climate concerns.

Shell is trying to keep up its legacy oil and gas business and also invest aggressively in renewable energy for future prospects. Loeb says this is affecting the company’s performance and is calling for a break-up into two separate companies; one that’ll focus on renewable energy and another that’ll keep up the legacy business and prioritize returning capital to shareholders.

At face value, Loeb’s argument makes good sense. Shell is currently trying to serve two masters and having problems with its stock performance. If separated, it could command a much higher combined value from its respective renewable energy and legacy oil and gas businesses, especially as investors now place much value on the former compared to the latter.

Specifically, Loeb is pushing to separate Shell’s liquefied natural gas, renewables and marketing businesses into a standalone company, while the legacy upstream, refining, and chemicals operations are retained.

Like many big oil companies, Shell is reckoning with shareholders and governments over its role in climate change. This has made the company boost its renewable energy efforts as many governments are becoming unfriendly towards environment-polluting fossil fuels.

For example, the Dutch government has ordered Shell to cut its emissions by 45% in 2030 compared to 2019 levels. Shell falls mainly under Dutch jurisdiction, so it would have difficulty not complying with the order.

While Loeb has made his point, implementing it is a different battle altogether. Pushing for such major change could draw major opposition from Shell’s board that’ll derail it.

Activist investors like Loeb are known for picking many fights, some they win, some they lose. It’s unclear how the contest with Shell will go.

Third Point’s latest shareholder letter said its flagship fund was up 29.5% year-to-date. The fund is notably heavy on technology stocks, with major holdings in digital lender Upstart (NASDAQ: UPST), fintech giant SoFi (NASDAQ: SOFI), and ride-hailing giants Uber (NYSE: UBER) and Didi Chuxing (NYSE: DIDI).

Third Point has over $17bn of assets under management.