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Royal Dutch/Shell Announces Merger

LONDON -- The Royal Dutch/Shell Group of Cos. unveiled plans Thursday to merge its two holding companies after nearly a century apart, a response to a scandal over its downgrading of oil reserves, reported the Associated Press.

The company, which posted third-quarter profits double those of a year ago, also warned it might further reduce its proven oil reserves. Shell said that scrapping its twin-board structure was the best way to eliminate accounting failures that led it to admit in January that it had vastly overestimated reserves, its most precious asset. Since then it has reduced the total of its reserves by 23 percent, or 4.47 billion barrels, and said Thursday it may have to cut estimates by 900 million more.

The proposal to merge Shell Transport & Trading Co Ltd., which holds 40 percent of Royal Dutch/Shell, and Royal Dutch Petroleum Co., which holds 60 percent, was largely welcomed by the market, and overshadowed the possibility of more restatements.

Investec analyst Bruce Evers said the shake-up would go "a long way to meet the demands of investors" angered by the reserves crisis, which led to three senior executives being ousted and almost $150 million in fines imposed by U.S. and British regulators.

Under Thursday's proposal, the two parent groups, which have been managed as a unit since 1907, will merge and form the supervisory board of the new company, to be named Royal Dutch Shell plc. The consolidation is expected to take place in the second quarter of 2005, with the new company to be nominally based in London but have its physical headquarters and tax home in The Hague, Netherlands.

If stockholders approve, they will receive shares in the new company on a one-for-one basis. Dividend payments will be shifted to a quarterly basis from their current semiannual frequency.

The current chairman of the Royal Dutch/Shell Group's board of managers, Jeroen van der Veer, will continue as the new company's CEO. "This is the end of 60/40, we become one company with one share," Van der Veer said. "There is one set of directors, one CEO, one person who has to take full accountability."

Van der Veer said the company's review of reserves is still not complete, and it may have to downgrade estimates by another 900 million barrels. Shell said that definitive figures on the possible shortfall would be provided with annual financial results in early 2005.

The company also announced Thursday that net income for the third quarter rose to $5.4 billion from $2.45 billion, benefiting from rising oil and chemicals prices. Sales increased 35 percent to $89.5 billion as the company reported strength in all of its biggest businesses.
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