International In-house Counsel Journal

Vol. 3, No. 11, Spring 2010, 1

International In-house Counsel Journal ISSN 1754-0607 print/ISSN 1754-0607 online

The Acquisition of the Publicly-Held Shares of Shell Canada Limited1

DAVID BRINLEY

Vice President and General Counsel, Shell Canada Limited, Canada

MICHAEL COATES

Senior Legal Counsel - Corporate Mergers & Acquisitions, Shell International B.V.,

The Netherlands

The acquisition by affiliates of Royal Dutch Shell plc (“RDS”) of the publicly-held shares

of Shell Canada Limited (“Shell Canada”) was one of the major transactions in the oil

and gas sector in 2007. Whilst not a merger or acquisition in the “traditional” sense, the

existing majority interest held by RDS in Shell Canada raised a number of legal and

practical considerations. This article examines the key aspects of the transaction from

the point of view of RDS and Shell Canada.

BACKGROUND

Takeovers in the Canadian energy and natural resources sector have experienced an

upturn in recent years, and many of these transactions have been undertaken by groups

headquartered outside of Canada.

Although the global financial crisis may have dampened more recent activity, 2007 was a

significant year for mergers and acquisitions in Canada, particularly in the oil sands

sphere. Examples include the acquisition of Alcan by Rio Tinto2, Marathon acquiring

Western Oil Sands3, Statoil acquiring North American Oil Sands

4, and Prime West

Energy being acquired by the Abu Dhabi National Energy Company5.

1 This article is based upon a presentation given by the authors at the 2nd Institute for Energy Law,

Centre for American and International Law/ Section on Energy, Environment, Natural Resources

and Infrastructure Law, International Bar Association conference in London, United Kingdom on

10th November 2009. Special thanks to Shannon Cosmescu, Managing Counsel and Company

Secretary to Shell Canada Limited. 2 The refers to the acquisition by Rio Tinto PLC’s Canadian subsidiary, Rio Tinto Canada Holding

Inc., of the Canadian company Alcan Inc. 3 On July 31, 2007 Western Oil Sands (“Western”) announced a plan of arrangement with

Marathon Oil Corporation (“Marathon”) pursuant to which Marathon would acquire all of

Western's outstanding common shares and gain ownership of its 20 percent stake in the

Athabasca Oil Sands Project. 4 On June 25, 2007, Statoil announced that an offer by a Statoil subsidiary, Statoil Canada Limited,

to acquire all of the securities of North American Oil Sands Corporation (“NAOSC”) had been

satisfied, with approximately 98 % of the NAOSC shares having been validly deposited to the

offer. NAOSC was a private Canadian company with oil sands prospects in the Athabasca

region around Fort McMurray. 5 The Abu Dhabi National Energy Company PJSC, a publicly listed company on the Abu Dhabi

Securities Market, announced on January 16, 2008 that its wholly-owned subsidiary, TAQA North

Ltd., had completed its acquisition of Prime West Energy Trust by way of plan of arrangement.

2 David Brinley And Michael Coates

THE PLAYERS

Shell Canada

In 2007, Shell Canada was a large integrated petroleum company in Canada6, consisting

of both upstream and downstream businesses as well as the unique oil sands business,

which itself is something of a mix of mining, upstream exploration, and downstream

refining. Prior to the transaction, Shell Canada was publicly-listed on the Toronto Stock

Exchange, with RDS holding a majority (some 78%) of the outstanding shares in issue,

and having a market capitalization in excess of CDN $27 billion just prior to the

announcement of RDS’s intention to make its offer.

At the time, Shell Canada was governed by a board consisting of the Chief Executive

Officer (a Shell group secondee), two Shell-nominated directors and nine independent

directors, a structure which is consistent with effective corporate governance practice in

Canada7.

Royal Dutch Shell

The Shell group has a relatively long history. From 1907 until 2005, Royal Dutch

Petroleum Company (“Royal Dutch”) and The “Shell” Transport and Trading Company

p.l.c. (“Shell Transport”) were the two public parent companies of a group of companies

known collectively as the “Royal Dutch/ Shell Group”. In 2005, as part of the group

unification project, Royal Dutch Shell plc became the single parent company of Royal

Dutch and Shell Transport (the “Unification”).

According to securities documents published at the time8, the Unification would bring a

number of benefits to Shell, including increased clarity and simplicity of governance9

increased management efficiency10

, and increased accountability11

. The Unification also

allowed for greater flexibility in issuing equity and debt, including on an SEC-registered

basis. It was in this context that the acquisition of Shell Canada was undertaken.

DEAL LOGIC

The Canadian stock market contains a fairly large number of controlled companies, with

a great deal of foreign ownership. In common with the United Kingdom, the rules for

6 Shell Canada Limited 2006 Annual Information Form, 8 March 2007.

7 National Instrument 58-101 Disclosure of Corporate Governance Practices.

8Including the Listing Particulars issued by RDS in respect of the introduction of its “A” shares

and “B” shares to the Official List of the UK Listing Authority and to trading on the market for

listed securities of the London Stock Exchange and to Eurolist by Euronext Amsterdam, 19 May

2005. 9 Including a single, smaller board, a single non-executive Chairman and a single Chief Executive

with clear lines of authority. 10

This referred to improved decision making and management processes generally, including the

elimination of dual corporate headquarters in favor of a single corporate headquarters, the

elimination of duplication and the centralization of functions. 11

Including an Executive Committee reporting through the Chief Executive Officer to a single

board with a single non-executive Chairman.

Share Acquisition 3

takeover bids are relatively “bidder-friendly” in Canada – and certainly more bidder

friendly than in the US - in that regulators are somewhat hostile to “poison pills” or other

frustrating measures, or at least the length of time such measures can exist.

There are some areas in which Canada has more stringent requirements. In an unsolicited

offer, for example, if the offer consideration is cash (either in whole or in part) a bidder

must make adequate arrangements prior to launching a bid to ensure that the required

funds are available to make full payment for the securities to be acquired. Such financing

arrangements may be subject to conditions if, at the time the bid is commenced, the

bidder reasonably believes it to be remote that, if the conditions of the bid are satisfied or

waived, the bidder will be unable to pay for the securities deposited under the bid due to a

financing condition not being satisfied12

(in the US, in contrast, a bidder can make a

takeover conditional upon financing).

For RDS, there was a compelling business case to undertake the transaction. Aside from a

strong alignment with the Unification project described above, another important driver

was the facilitation of investment in Canada. At the time of the transaction, there was an

increasing interest in large, unconventional oil plays, including the Canadian “oil sands”

projects. For RDS, successful completion of this transaction would allow focused

management and governance over projects in Canada, and allow RDS to increase

decision making speed and consolidate control over its Canadian operations.

RDS STRATEGY

The existing ownership interest of RDS in Shell Canada impacted the deal strategy in this

transaction. As with any public M&A transaction, consideration had to be given to

whether a hostile or “friendly” transaction would be the preferred route. Also, the

communication methodology would be important - the fact of RDS’s existing ownership

interest meant that any approach would be made to the Lead Director13

of Shell Canada

given the potential conflict of interest of the Chief Executive Officer of Shell Canada

who had been seconded by the Shell group.

Deal governance and management would also be another critical issue. It was decided

that a small project team and a small decision making body would be preferable and that

Shell-nominated Shell Canada directors would be ring-fenced. In addition, a pre-existing

Canadian Shell subsidiary, Shell Investments Limited, would be used as the acquisition

vehicle and reconstituted with RDS representatives following resignations of relevant

Shell Canada representatives.

THE APPROACH AND AFTERMATH

The initial approach was made by RDS to Shell Canada’s Lead Director. Following the

approach, the senior management team of Shell Canada was convened. The approach

was significant from a number of perspectives; in particular, deal insiders were restricted

from being able to trade in Shell Canada shares and communication between Shell

Canada and RDS and their respective representatives would need to be limited.

12

Securities Act (Ontario), section 97.3. 13

An independent director identified by the board as the Lead Director to compliment the role of

the Chairman of the Meetings of the Board (a Shell-nominated director) and tasked to, among

other things, ensure that the board functioned independently of management.

4 David Brinley And Michael Coates

It was also necessary to identify senior officers of Shell Canada who might be construed

as being conflicted, or potentially conflicted, in the context of the transaction, and this

included certain senior Shell secondees.

The management of Shell Canada was tasked primarily with continuing to run the

business throughout this process. Shell Canada management was not tasked with the

process of negotiating with RDS directly, but nevertheless had a key role in providing

information necessary for the valuation.

As a matter of priority, a Shell Canada communications plan for the transaction was

required to be put in place. This was especially important given the range of interested

stakeholders including the relevant Canadian Federal and Provincial Governments,

employees, customers, suppliers, and of course Shell Canada shareholders.

After the approach was made, a Special Committee of the Shell Canada board was

formed. The purpose of this committee was to advise the Shell Canada board as to the

transaction generally, including as to strategic matters, including the extent to which co-

operation with RDS should be provided. Ontario Securities Commission Rule 61-50114

(“OSC Rule 61-501”) requires that the Special Committee be composed of independent

directors, which provides minority shareholders with a certain degree of protection.

The Special Committee was to negotiate directly with the RDS deal team, and for this

purpose it would have its own legal counsel and would select and oversee the financial

advisors. It was noted from the outset that the Special Committee had obligations to

ensure a fair process for all shareholders, especially in light of the regulatory preference

in Canada for letting shareholders have the chance to decide on the merits of a takeover

offer. In the face of a determined RDS effort, it was important to ensure that Shell

Canada shareholders had all the relevant facts at their disposal in deciding upon the offer.

ACQUIRING THE MINORITY

For RDS to be successful in its offer, it would need to secure the acceptance of a

“majority of the minority” of Shell Canada’s shares. There were several options for RDS

to pursue the minority shares. The most simple and direct approach, and the one which

ultimately was chosen, was to make an offer directly to shareholders.

When a majority shareholder holding more than 10% of the shares elected to pursue the

remaining minority shares, this was called an “insider bid” and, in the case of a large

listed company, fell under OSC Rule 61-501.

OSC Rule 61-501 recognizes that an insider bid is not inherently unfair, but does

recognize that these transactions are capable of being unfair and a majority shareholder

may have an informational advantage over smaller investors. As a consequence, it

imposes rules governing, among other things, information disclosure and valuation –

those things of most interest to an investor trying to decide if he or she should respond

favorably to an offer.

14

Ontario Securities Commission Rule 61-501 Insider Bids, Issuer Bids, Business

Combinations and Related Party Transactions.

Share Acquisition 5

The Shell Canada board was tasked primarily with discharging their fiduciary duties to

shareholders and ensuring that any recommended transaction was reasonable and fair to

shareholders.

In particular, the Shell Canada board took steps which included the following:-

(i) Seeking declarations that the board was clear of conflicts of interest. This required

that regular disclosures regarding shareholdings and outside interests were up to date

in the context of the transaction, including with respect to holdings of RDS shares or

options.

(ii) Ring-fencing RDS-nominated directors, of which there were two. This was achieved

in two ways: - first, when the entire board was required to meet, the RDS nominee

directors were advised to absent themselves from the meeting, or abstain from voting

on matters relating to the takeover - and more specifically, matters that may impact

the value of the company. Secondly, as mentioned above, a Special Committee of

independent directors was established to determine the fairness of the transaction.

Valuation would be the heart of the insider bid process. Under OSC Rule 61-501,

although RDS was required to pay the costs of the valuator, the valuator would be chosen

and supervised by the Special Committee. A robust, fair and independent valuation was

viewed as the most equitable way to address the informational disadvantage assumed to

be suffered by “public” (i.e. minority) shareholders.

The valuation would be expressed as an opinion which may or may not be endorsed by

the board of Shell Canada. Such valuations are often expressed as a range of values –

and usually are “ground up” and objective – meaning that the valuation does not take into

account the fact that a minority block of shares was proposed to be acquired. A valuation

may, however, take into account synergies realized by a majority bidder in the transaction

– in other words, the minority interest may be of more value to a majority shareholder

than some other party. The valuation opinion would also contain details as to the

methodologies used, which may include discounted cash flow analysis, net asset value,

comparable transaction value, or a combination of these.

The board of Shell Canada would then be asked to determine if the offer is fair and, if so,

to recommend that shareholders accept the offer. The main alternatives to a positive

recommendation were to recommend that shareholders do not accept the offer, or to

remain neutral and not express an opinion.

RDS was fortunate in that it already held a Canadian company, Shell Investments

Limited, with interests in Shell Canada. This would simplify the process for RDS,

although it was required to remove from the board of that company any Shell Canada

employees serving as directors.

Regarding disclosure in a merger or amalgamation, a decision by the Ontario Securities

Commission15

had confirmed the market practice that, in normal circumstances,

public disclosure is only required once both parties have received requisite board

15 In the matter of the Securities Act, R.S.O. 1990, c.S.5, as amended, and in the matter of

AiT Advanced Information Technologies Corporation, Bernard Jude Ashe and

Deborah Weinstein, 19 February 2007.

6 David Brinley And Michael Coates

approvals and a definitive agreement is executed. In this case, the size of RDS

ownership argued in favor of disclosure. As Shell Canada had U.S.-based shareholders

and was registered as a foreign private issuer with the U.S. Securities and Exchange

Commission, this also meant that applicable U.S. disclosure requirements would need to

be observed.

DISCLOSURE ISSUES

As part of the negotiations at the outset of the deal, a Confidentiality Agreement between

the parties was signed which included restrictions on the use of particular information.

Central to this agreement were disclosure limitations for use in valuations and on a “need

to know” basis with RDS. Additional flexibility to meet the parties’ regulatory needs was

also required, especially with respect to the RDS reserves auditing process, in respect of

which the Canadian information would be an important part.

A recommendation to the Special Committee was also made to set up parallel data rooms

for both the valuator and for RDS, and include the same information in both to ensure

equality. Major announcements would still need to be made to the market, and reserves

and reserve values would be a particularly important in that regard.

As part of this process, it was recognized that it was going to be necessary to change pre-

existing behaviors. Information exchanges that would be considered acceptable during a

“business as usual” period may not be acceptable during the valuation period. In this

regard, guidelines were put in place for staff on each side of the transaction regarding

what could, and could not, be communicated.

NEGOTIATING THE DEAL

Negotiations were conducted between RDS and the Special Committee as to the offer

price. Each quarter of a dollar per share became critical in light of the fact every one of

those quarters represented CDN $80M. The final price of CDN $45 per share represented

a 37.2% premium to the final price just prior to the initial announcement of RDS’s

intention to offer.

Following reaching agreement as to the price, the next step was to negotiate the “Support

Agreement”. The purposes of this agreement was to formalize the terms of the offer to

be made to Shell Canada shareholders, and to secure in writing the support of the

directors and the cooperation of Shell Canada during the period of the offer.

From the acquiror’s perspective, it was necessary to have a fundamental minimum

condition without which obligation to purchase the Shell Canada shares would not be

triggered. This would be that holders of a majority of the outstanding shares accepted the

offer. Although RDS would require some flexibility to amend its offer, Shell Canada

would not without its consent want RDS to increase the threshold of the minimum

condition, decrease the consideration, change the form of the consideration or change to

scope of the offer.

RDS also had other requirements in relation to the Support Agreement. These included

that Shell Canada run the business as usual during the interim period and not do anything

to prejudice the offer process. RDS would also want to avoid Shell Canada changing its

debt or equity structure, making unusual payments to shareholders or officers, and

importantly, it would want Shell Canada to inform RDS of any competing offers.

Share Acquisition 7

OPTION HOLDERS

Employees holding options over Shell Canada’s common shares could simply be given a

tender opportunity similar to shareholders. When RDS’s offer became public, the trading

price should stabilize and there would not be a material incentive to hold options. One

difficulty, however, was the options’ three year vesting period and employees not being

able to liquidate them immediately in all circumstances. RDS could purchase those

employee options but in doing so it would lose the valuable employee incentives for

which the options were created. Moreover, RDS had ceased issuing employee options at

that time and did not want to create a new incentive scheme solely for the purposes of the

transaction.

As a consequence, it was agreed with RDS to create a special purpose entity to issue to

Shell Canada’s employee option holders, options over RDS shares. The structure is

summarized in the diagram below.

Shell Canada

Options

Corporation

RDS shares

from public

market Option contracts

Employee Option

Holders

Employee Option

Holders

Employee Option

Holders

Employee

Option Holders

Tender Existing SCAN Options

Shell Canada Options Corporation (“SCOC”) would be the vehicle used for this purpose

and would be funded in a way to enable it to enter into private option contracts with

option holders in respect of RDS shares in a manner that complied with the terms of an

exemption order granted by Canadian securities regulators. To meet any share obligations

under those contracts arising when the options vested, SCOC would purchase RDS shares

on the market and subsequently transfer them to the relevant employee option holders.

For this purpose, it was required to be determined how many RDS options should be

given in exchange for Shell Canada options, and the exchange value was calculated by

specialized consultants. SCOC would be owned by a Canadian trust with services

provided by Shell Canada.

8 David Brinley And Michael Coates

Another reason for setting up the special purpose vehicle was to ensure that Canadian

option holders would not lose capital gains treatment granted to them under Canadian

law. Changing the options into another compensation form would jeopardize their tax

status, and it was considered important to preserve their benefits in a holistic sense.

THE TENDER CIRCULAR

The Tender Circular was a central document in the transaction and was the mechanism by

which RDS’s offer was conveyed to Shell Canada shareholders. The document contained

the following key provisions:

1- The terms of the offer, including provisions that RDS could withdraw or extend the

offer period unless certain conditions were met or waived, and most importantly, the

condition that a majority of the outstanding shares were tendered. Other conditions

included the securing of government approvals, the absence of material litigation or

other adverse events which would fundamentally impact the value of Shell Canada

or hinder the completion of the transaction.

2- A detailed description of the mechanics of the offer. This required some creative

thought as to how to deal with the variety of human behaviors present in the

investing world. The document needed to provide an option for Shell Canada

shareholders who simply changed their mind – basically, the right to revoke any time

prior to take-up and payment. The needs of different groups of shareholders -

ranging from large sophisticated institutional shareholders to retail shareholders –

would also need to be considered. In addition, some shareholders held their shares in

trust, or commonly in a broker’s name. A mechanism termed “guaranteed delivery”

was used for those who could not access their certificates quickly - this involved a

pledge for those shareholders to deliver and a grace period within which to deliver

the actual certificates - in this case within 3 days of the expiry of the offer.

3- RDS wanted clearly to preserve its right to extend the duration of the offer. It is

fairly common in deals such as this to extend the offer for tactical reasons.

4- RDS was required to specify the terms of take-up and payment for shares. Standard

terms are to take-up within 10 days of the expiry of the offer period if all conditions

are met and to pay within 3 days of take-up. Since shareholders could revoke their

tender of shares up until the take-up, RDS wanted to ensure that it could take-up

sooner than 10 days if it achieved desirable result.

5- Shell Canada option holders were required to be covered in the circular (see

discussion above).

6- RDS wanted to preserve an option to go into the market to purchase additional Shell

Canada shares if strategically useful. There were, of course, limits under law on what

it could purchase - 5% being the maximum, and any such purchases were required to

be accompanied by a daily disclosure to the markets regarding the amounts so

purchased.

7- Required to be included were also a number of items of background information for

Shell Canada shareholders, including information regarding both RDS and Shell

Canada. Also included was chronology of the events leading up to the offer, and key

Share Acquisition 9

agreements between the parties relating to the offer – notably the Confidentiality

Agreement and the Support Agreement.

8- Finally, because Shell Canada had U.S. shareholders, there were a number of

Special Factors which were required under U.S. securities laws, including: the

purpose of offer, the alternatives considered, the plans for Shell Canada if the offer

were successful, the source of funding for the offer, the role of the valuator and how

it was selected, role of the Special Committee and the relationships existing between

any interested parties.

THE DIRECTORS’ CIRCULAR

As mentioned above, the Tender Circular was a key document produced by RDS and

mailed to Shell Canada shareholders. For Shell Canada’s part, the recommendation of the

Shell Canada board in support of the offer would be embodied in the Director’s Circular,

which would be mailed out in the same envelope as the Tender Circular.

The Directors’ Circular would reflect much of the work undertaken by the Special

Committee and contained the background of deliberations by the Special Committee and

the Board of Directors of Shell Canada.

In addition, the Directors’ Circular contained the recommendation of the Special

Committee to the board in respect of the offer, including that:

(i) the offer was fair to shareholders (and discussion of material factors considered

in reaching this conclusion); and

(ii) a discussion of the valuation process and the valuator (and attaching an

independent valuation and fairness opinion)

Other disclosures were required to be included in the Directors’ Circular, including a

description of the Support Agreement, disclosure of certain ownership interests of the

Shell Canada directors, disclosure of the principal holders of Shell Canada shares,

disclosure of compensation and benefit arrangements between Shell Canada and its

officers, and disclosure of ties between RDS and the Shell Canada officers.

POSSIBLE SCENARIOS

With the Tender Circular and Directors’ Circular posted to Shell Canada shareholders,

there were three main possible outcomes of the offer:-

Scenario A – RDS achieves less than a majority of the outstanding minority

If reasonably close to achieving a majority of the outstanding minority, RDS could

extend the offer period in 10 day increments until it achieved the “Minimum Condition”

– i.e. 50% + 1 of the minority shares held – and increase consideration in doing so. In

addition, RDS could go into the market to purchase shares up to a further 5%, but any

such purchases would need to be disclosed publicly. If ultimately unsuccessful, the offer

could be terminated and either the purchased shares redelivered to selling shareholders,

or tendered shares retained by RDS to bide its time for another attempt. In terms of the

RDS and Shell Canada interface in such a case, the status quo would be maintained until

the offer was formally terminated.

10 David Brinley And Michael Coates

Scenario B – RDS achieves a majority of minority, but less than 90% of the minority

This would mean that the ability to acquire the remaining Shell Canada minority interests

would be within RDS’s control, but additional steps would be required, including

convening a special meeting of Shell Canada shareholders to propose an amalgamation or

another second stage transaction. A second stage transaction approval had one and

possibly two requirements. First, if RDS had less than 90% of all Shell Canada shares

(which is different from the 90% of the minority in Scenario C below) then it would need

to carry the vote at the shareholder meeting (requiring 2/3 of all shares voting at the

meeting) and have minority approval (a majority vote of minority shares voting at the

meeting). However, RDS could vote the minority shares that it received in the tender,

which would carry the minority requirement. If RDS had 90% of all Shell Canada

shares, then it did not need minority approval provided statutory (or equivalent) dissent

and fair value rights were made available to minority shareholders. In terms of

implications for the RDS and Shell Canada interface in such a case, executive authority

could not transfer to RDS until after the special shareholder meeting. Prior to such

meeting, RDS could replace Shell Canada directors and could, with Shell Canada board

approval, replace executives, but Shell Canada would still be subject to rules requiring a

majority of independent directors, an independent Audit Committee, and minority

shareholder rights.

Scenario C – RDS acquired 90% of the minority shares either through the original

offer or through an extension

In such a case, RDS could send all Shell Canada shareholders a “notice of compulsory

acquisition” and pay the consideration for the untendered shares into a trust. In such a

case, the rights of minority shareholders would cease (except for the right to receive fair

value for their shares) and RDS could require an immediate resignation of the Shell

Canada board. In terms of corporate control, there would be an immediate transfer of

executive authority to RDS.

THE FINAL OUTCOME

March 16, 2007 was the date of the initial expiry of the offer. By this stage, RDS had

achieved a majority of the minority but less than 90% of the public float it desired. A

decision was taken by RDS to extend the offer for 10 days.

By March 30, 2007, more than 90% of the public float had been acquired by RDS. A

statutory compulsory acquisition procedure was initiated by RDS to acquire the

remaining untendered shares by mailing a notice to the remaining shareholders and to

Shell Canada. Under applicable law, RDS could consider the acquisition complete upon

the expiration of the dissent process that forms part of the compulsory acquisition

procedure. The effective completion date of acquisition was April 24, 2007 and

thereafter the Shell Canada board of directors was reconstituted and board governance

restructured.

REGULATORY ISSUES

As with any major transaction, regulatory issues played an important part in the

successful outcome. In addition to the requisite antitrust analysis when a non-Canadian

entity seeks to acquire a Canadian company, Investment Canada will have the right to

review the transaction and determine whether or not it is in the best interests of Canada.

Share Acquisition 11

Undertakings could have been required in the case of either competition or foreign

investment review though due to the factors of this case, the relevant authorities decided

not to impose undertakings.

In addition, an opinion from Revenue Canada was required in support of the SCOC

mechanism to ensure that option holders do not lose their capital gains benefits by

switching to RDS options.

Canada is somewhat unique in its securities regulation in that there is no unified Federal

securities regulator. Therefore, securities laws exemptions and approval to terminate

reporting issuer status from the securities regulators for all 13 provinces and territories

was also required. The delisting of Shell Canada from the Toronto Stock Exchange

followed the successful completion of the offer.

CONCLUSION

With the offer successfully completed, it was recognized that integration of Shell Canada

into the broader Shell group would require a significant amount of focus. Although it is

one thing to effect the mechanics of a takeover, it is quite another to secure the

anticipated benefits. How RDS integrated Shell Canada systems, processes and personnel

into the broader Shell group was considered an extremely valuable part of the transaction.

Due to having secured more than 90% of the minority shares, RDS was in a position to

move very quickly on the transfer of executive authority. This began with a

reconstruction of the Shell Canada board of directors. Due regard was paid to the strong

governance practices of the outgoing directors, and also in respect of the staffing of key

management positions.

In order to look after the many necessary aspects of the integration, an Integration Team

was formed which also functioned as a management team. This was an important

decision, as the alternative would have been to keep a separation between the integration

team and the ongoing management of the day-to-day business.

It was loss of focus on business that was considered the primary risk during the transition

period, and it was determined that having a single team was justified due to a number of

factors including the fact that Shell Canada had already adopted or was familiar with

many RDS processes, a necessary level of collaboration prior to the merger; and the

desire to have continuity of accountability in the hands of the same persons both during

and after the integration.

The Integration Leadership Team consisted of persons appointed by RDS and those

already in Shell Canada in order to draw on the strengths of both organizations. The team

included representation from the businesses, namely Oil Sands, Downstream, and

Exploration & Production, as well as key functions: Legal, Health Safety and

Environment, Finance, Human Resources, IT, and External Affairs. The team was also

assisted by a Project Management Office with respect to organizational matters. The

Project Management Office would maintain a scorecard for the team measuring progress

and success in a number of pre-defined issues.

The post transaction integration process went well allowing Shell Canada to become a

wholly-owned member of the Shell group.

12 David Brinley And Michael Coates

Shell is a global group of energy and petrochemicals companies, with around 101,000

employees in more than 90 countries and territories.