Sell’s disappointed financial results
Recently, Royal Dutch Shell PLC has published its fourth-quarter and full year 2010 results. Shell Chief Executive – Peter Voser was disappointed about the result. Their earnings were $4.1 billion which is below the forecasts. The low natural-gas prices in the US, high price of material, some big refineries closed, and the government’s imposement of an oil drilling moratorium in the Gulf of Mexico have badly affected Shell’s profit earning.
Shell focus on the goal of shareholder wealth maximizing because it has invested large portions of fund in exploration of new area for oil drilling (such as Alaska’s Beaufort and Chukchi Seas) and these will directly benefit for the long-term. However, it is difficult for Shell to satisfy both shareholder and the society. Shell has an Alaska drilling plan, but due to the environmental issue – air-quality, it has to delay its plan. The environmental groups are happy with this result. They consider the safety of the environment. Oil drilling is a high risk activity and it may cause explosion. But this delay will cause Shell a lot of money and it will damage shareholders’ wealth.
A company can not only consider shareholder value, it also needs to consider stakeholder value – customers, government, even the whole society. Companies need to make thorough decision to consider both the shareholder and stakeholder value. Companies may easily ignore the safety of the environment and focus on the benefit of the shareholders. And government is an important role to protect stakeholder’s benefit in this case. Shell needs to explore a better way to balance the company benefit and environment safety.
Actelion may face an acquisition
Another piece of news is from Actelion Ltd. Actelion is the Europe’s largest biotech company. The company has suffered a 50% stock market valuation decreased below where it could be. And one of company’s largest shareholder – Investment firm Elliott Advisors Ltd. will put agenda of a sale of Actelion for Actelion’s shareholder meeting on May 5. It considers Actelion has a bad future direction and management. Also it stressed Actelion Chairman Robert Cawthorn and Chief Executive Jeanpaul Clozel to step down from the board immediately. It said they against shareholders’ interest.
If one company’s management cannot properly satisfy shareholders’ interests, they may be asked to quit. Shareholders’ of Actelion may want to have a high market share price and a bidder can raise Actelion share price. Elliott may ignore how the employees in company are or even how the company is running during the year but it has high interest in its share price and dividends. Has a bidder may not good for the company management or employees but it is good for shareholders. So the management really needs to put the shareholder value the first place and has a long-term progress step by step.
Did Shell's investment in exploration in Alaska and Chuckchi sea actually increase shareholder wealth? Or has it not been realised yet?
ReplyDeleteI understand what you mean by Shell not being able to satisfy shareholders and stakesholders especially with the environmentalists wanting the drilling to not take place in Alaska, but does Shell have any choice?
It is very difficult for any company to satisfy the needs of all stakeholder groups. I think it needs to be contemplated whether Shell have a choice, if they do not push for more exploration will their profits fall?or is it a matter of falling behind in growth, as large competitors like BP are increasing their exploration?
Shell hadn't say whether invest in Alaska or Chuckchi can increase shareholder wealth. Peter Voser just said Alaska 'remains an interest ing area for us in the longer term.' Just my opinion that these places can give Shell abundons of oil and support its prodution demand.
ReplyDeleteIt may have other choices to overcome its current difficult situation. But Shell just complained about this situation. Shell just major in refining and oil drilling is rather important for it, personnaly. They may need to find beter way to resolve the difficulty.