Shell answers its critics with pounds 1.3bn chemicals shake-up

Shell, the Anglo-Dutch oil giant, yesterday moved to answer its critics with a radical shake-up of its chemicals businesses, coupled with a $2bn (pounds 1.3bn) deal to buy out its joint venture partner in the world's largest polypropylene producer.

The restructuring plans, a response to fierce price competition in global chemicals markets, involve Shell buying the 50 per cent of Montell, the Amsterdam-based polypropylene business, which it does not already own from Montedison of the Netherlands.

Montell was formed just two years ago to include most of the two companies' polypropylene making capacity, with manufacturing plants in 16 countries. Last year Montell, which was the number one producer of the chemical everywhere apart from Asia, had revenues of $3.8bn and made profits of $334m.

In a statement yesterday, Shell said Montell would continue to trade under its own name and with the same management, but would be controlled by the new chemicals group, called Shell Chemicals, being created when the reorganisation takes effect from 1 January. The acquisition also needed approval from the European Commission's competition authority.

The wider shake-up in the group, which was described by Shell as "decisive", would replace three existing divisions, covering Europe, the US and the rest of the world, with a single company structure. A Shell spokesman said the move would not result in widespread job losses or other changes to the company's executive team.

The new structure, under Evert Henkes, currently director of strategy for the chemicals group, will create three presidents' posts for businesses in the Americas, Europe and Africa and Asia Pacific and the Middle East.

Analysts were disappointed at the decision to pour money into the chemicals businesses when other parts of the Shell empire have earned higher returns. Shares in Shell slipped 3.5p to 423.5p.

John Toalster, oil analyst with Societe Generale, was sceptical. "It's almost a non-event. It's not particularly a big deal in terms of Shell's cash pile. The money would have had a better return in other parts of the business such as refining and marketing. This is a damp squib and it's also an expensive damp squib."

The performance of Shell's chemicals businesses was singled out as disappointing by Mark Moody-Stuart, group managing director, at the company's financial results presentation last month. Outside the US earnings fell 38 per cent to pounds 86m, with pounds 30m of the fall blamed on the decision to spend three-quarters of the division's maintenance budget in just three months.

Shell has come under persistent fire from investors and analysts for its famously cautious approach to spending its pounds 7bn cash pile.

Mr Moody-Stuart was forced to dampen speculation of imminent share buy- backs by Shell Transport & Trading, the UK quoted part of the group, as British Petroleum led the way with plans for a series of buy-backs next year.