Shell: Green Finance and Sustainability Challenges - Teaching Note: Activist Investor Demand to Split the Company

On October 27, 2021, Daniel S. Loeb, founder and chief executive of the hedge fund Third Point, sent a letter to Royal Dutch Shell's Board of Directors outlining a significant value-creation opportunity. The letter suggested splitting the company in two -- a spinoff company that will include the Liquefied Natural Gas, Renewables, and Marketing businesses and the remaining company that will include the Upstream, Refining, and Chemicals operations. How might the CEO and Board respond to this suggestion? How can Shell manage the increasing pressure from the activists? Should Shell frontally reject the proposal or try to arrive to an agreement? To successfully answer these questions, the participants will need to consider several key factors such as the financial implications of such a spinoff in Shell's valuation and cost of capital, its governance issues, the impact on the various different stakeholders, and how this case fits in the current sustainability trends.