Court Rules Shell Violated Disclosure Rules in Buyout

Royal Dutch-Shell Group violated disclosure rules in its $5.7-billion buyout of minority shareholders in the former Shell Oil Co. five years ago, a court held.

The Court of Chancery in New Castle County, Del., ruled in favor of a group of minority shareholders who sued over the terms of the buyout.

Tuesday’s ruling did not determine how much the former owners of 15 million shares of Shell should be awarded, said Houston attorney Ken McNeil, who represented the plaintiffs. The judge asked both sides to submit recommendations on the award but set no date for a hearing.

The violation occurred “because the defendant failed to disclose the existence of oil and gas reserves having a value of approximately $1 billion,” the court ruling said.

The class-action suit was filed by the former Shell minority shareholders against Shell Petroleum Inc., the Royal Dutch-Shell subsidiary that bought out Shell Oil’s minority shareholders.

The Anglo-Dutch oil giant had owned 69.4% of Shell Oil. It initially offered $55 a share for the remainder, raised the bid to $58 and finally agreed to pay an extra $2 a share to settle a lawsuit by some minority shareholders.

H. R. Hutchins, a spokesman for Houston-based Shell, said the company was disappointed with the court’s decision.

“The court based its decision on an inadvertent error which left out about 8% of the discounted future net cash flow from estimated oil and gas reserves,” Hutchins said. “In view of the voluminous information that was furnished to the shareholders, we believe they could readily have made an informed decision with respect to the 1985 merger.”