Restructuring planned for Royal Dutch and Shell

The concentration of the largest companies in the FTSE 100 index is set to increase on July 20, following the unification of Royal Dutch and Shell Transport & Trading.

Shareholders of both companies approved the restructuring on June 28. Royal Dutch Shell will be headquartered in the Netherlands and listed on the London Stock Exchange. At present, Royal Dutch is listed in Amsterdam and Shell shares trade in London.

A number of active fund managers have made tactical decisions to buy shares in both companies in anticipation of a rally in their share prices running up to the restructure.

The theory behind this tactic is that as Royal Dutch Shell increases its weighting in both the FTSE 100 and FTSE All-Share indices, managers of index-tracking funds will become forced buyers of the oil giant.

Richard Prew, manager of the Axa UK Growth fund, says: “We have been moving to an overweight position in Shell since the end of 2004. We also decided to add Royal Dutch to the portfolio. Our intention is to move to an underweight position in Royal Dutch Shell following the restructure. We might consider a switch into BP.”

Both the UK Growth fund and Stuart Fowler’s UK Opportunities fund have been running between 7% and 10% total holdings in Royal Dutch and Shell, says Prew.

Derek Mitchell, manager of the F&C UK Prime fund, says: “We have sat with a big overweight in Shell for many months now. It is the biggest holding in the UK Prime portfolio, making up 7.9% of the fund.”

Mitchell adds: “We are now seeing continual buying of the company in the run-up to July 20. Combined with oil prices at around $60 a barrel, a lot of money is pouring into Shell.”