Shell and Texaco pact slashes costs in Europe
Friday 04 September 1998
The deal, which enables the pair to overtake BP as the biggest operator of petrol stations in the UK, follows a similar three-way agreement in the US with Texaco and Saudi Aramco, although it is less ambitious in terms of cost reductions being targeted. Shell yesterday talked of potential cost savings of $200m (pounds 120m) a year compared with the $1bn anticipated from the US deal.
Shares in the Anglo-Dutch group spiked up in early trading in London and Amsterdam despite Shell saying that this deal was not "the first step towards a full-blown merger". The shares later fell back as the markets succumbed to wider worries later in the day. Shell ended down 5p at 330p.
Shell yesterday admitted that some job losses were inevitable, but insisted that further details - including whether the combination resulted in closures of refining plant - had yet to be hammered out.
Analysts expect the deal to be closely scrutinised by the UK Office of Fair Trading and the European Commission, although the key stumbling block may lie in the Netherlands, where Shell already has 800 stations to add to Texaco's 557. Oil specialists Wood Mackenzie estimated combined market shares at 42.3 per cent in Holland, 28.2 per cent in Belgium, 32 per cent in Ireland and 32.7 per cent in Luxembourg.
In the UK where Shell now has 1,841 stations after taking over 328 from Gulf at the end of last year, the combined total will stand at more than 2,500. That will put them well ahead of both BP and Esso, which lead the market with more than 1,800 outlets each.
Competition in the UK retail market is a highly sensitive issue. There have been three Monopolies and Mergers Commission investigations in recent times. The Office of Fair Trading mounted its own investigation earlier this year following complaints about Esso's Pricewatch campaign, but cleared the industry in May.
Shell will be in the driving seat in what is effectively a takeover of the Texaco operations by its European rival. Shell will have 88 per cent of the joint venture, leaving Texaco with 12 per cent.
Analysts welcomed the deal as " a step in the right direction". Andrew Marshall at Robert Fleming said: "Rates of return in downstream are miserable. Anything you can do to improve profitability is welcome."
However, on Wall Street, Fadel Gheit at Fahenstock & Co criticised the decision to keep the two brands separate as indicative of dithering on the Anglo-Dutch group's part. "It is like a man and wife retaining two separate bank accounts. It eradicates most of the benefits you would expect from consolidating operations."
Shell has come under fire from the City for its failure to respond aggressively to the sharp fall in the oil price and the dramatic shift since this summer's mega-merger between rival BP and Amoco of the US.
In an attempt to rehabilitate itself in the eyes of investors, Shell last year set itself a target of 15 per cent return on capital by 2001. However, with the oil price at a 25-year low, the group is further away from the goal than last year. Shell Transport and Trading, the company's UK shareholding arm, has underperformed the FTSE by 28 per cent, while Texaco has seen its shares rise 5 per cent in spite of the oil price slide.
- 1 Nigel Farage: Me vs Russell Brand on Question Time – he's got the chest hair but where are his ideas?
- 2 Harry Potter fans can apply to the Hogwarts-inspired College of Wizardry
- 3 Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
- 4 Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
- 5 Orange Wednesdays are no more
Weather bomb in pictures: Storms cuts power for tens of thousands – and snow is on the way
Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
Russell Brand was rendered speechless on Question Time by this man
Fury at Airbus after it hints the super-jumbo may be mothballed
Nigel Farage: Me vs Russell Brand on Question Time – he's got the chest hair but where are his ideas?
Shock poll shows voters believe Ukip is to the left of the Tories
Disgruntled RBS worker writes hilarious open letter to Russell Brand after anti-capitalist publicity stunt leaves him hungry
New era of cheap oil 'will destroy green revolution'
Ukip founder Alan Sked and Nigel Farage 'begged Enoch Powell to stand as a candidate'
Ukip candidate jokes about 'shooting peasants' in racist and homophobic rant
iJobs Money & Business
£32000 - £35000 per annum + benefits: Ashdown Group: Marketing Services Manage...
£Neg. (DOE) + Excellent Benefits: Guru Careers: A Finance Account Manager with...
£40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...
£45000 - £55000 per annum + Benefits: Ashdown Group: An exciting opportunity h...