Why companies are ditching dual listings
A number of companies have recently opted to scrap their dual listing structures in a bid to simplify and streamline their business.
Royal Dutch Shell (RDSA.L) (RDSB.L) was the latest firm to announce an overhaul of its operations, revealing earlier this month that it will move its headquarters from the Netherlands to the UK.
The oil giant has been registered in the Netherlands for tax purposes since 2005, but its origins as a dual company dates back to 1907 when Koninklijke Olie merged with Shell Transport and Trading.
However, the company said that at the time it was not envisaged that the share structure would be permanent.
In August, BHP Group (BHP.L) (BHP.AX), the world’s largest miner, also decided to ditch its 20-year old structure, uprooting its base in London for a full move to Sydney.
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In contrast, mining company Rio Tinto (RIO.L) said last week it had no plans to follow in the footsteps of its peers, calling the move a needless expense that would eradicate advantages for its shareholders.
It currently operates under a one-management, one-board structure.
What is a dual-listed company?
Many publicly-traded firms are listed on more than one stock exchange, however, dual-listed companies have two primary listings with two separate legal identities that function as one economic entity.
Most take on a dual-listed structure to gain access to more capital and liquidity as it features in two or more stock markets.
“Dual listings effectively require everything to be done twice and the bill has to be paid in both time and money,” Danni Hewson, financial analyst at AJ Bell, said. “A single listing is cleaner and leaner.”
While there are pros and cons of dual listings, with the main criticism being complexity and cost, here are a few reasons why companies are getting rid of them:
One of the key things Shell highlighted in its announcement this month was that it aims to “strengthen its competitiveness” and “increase the speed and flexibility of capital and portfolio actions”.
The simplified structure to a single class of shares allows a company to boost shareholder payouts, creating a larger single pool of ordinary shares that can be bought back by the company.
“The change to the share classes removes a disadvantage Shell had versus its peers,” Oswald Clint, analyst at brokerage firm Sanford C Bernstein, said.
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“It will end the misalignment of two different tax and revenue authorities, removing friction and withholding tax issues around buybacks, while allowing them to increase materially.”
Last year consumer goods giant Unilever (ULVR.L) said it too was getting rid of its Anglo-Dutch structure, which has been in place since 1930, in favour of a London base to provide “greater strategic flexibility”.
It now has its primary stock market listing in London, with a secondary listing in the Netherlands and the US.
Mergers and acquisitions
Another benefit of having a single legal structure is allowing the firm to be more readily available for takeovers, mergers and demergers.
According to analysts, dual structures can make stock-based acquisitions and corporate restructurings more difficult.
A month ago, Wall Street activist Third Point revealed a $750m (£558m) stake in Shell. The investor, run by billionaire Dan Loeb, had previously called for the oil giant to split into multiple businesses to increase its value.
Third Point accused Shell of having “an incoherent, conflicting set of strategies attempting to appease multiple interests but satisfying none”.
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More and more big businesses are facing similar pressures to be simpler, to allow them to innovate and integrate.
Peter O’Connor, of Shaw and Partners in Sydney, said: “The probability of Rio collapsing its dual share structure and moving it to a London listing is moving towards 100, having been at around 50 on the scale of probability for years.”
Ken MacKenzie, chairman of BHP, said the company would be simpler and more efficient, with greater flexibility to shape our portfolio for the future.
“Our plans will better enable BHP to pursue opportunities in new and existing markets and create value and returns over generations.”
Read more: Unilever to ditch dual structure for single HQ in London
A dual structure can bring some tax advantages, however, in Shell’s case while the Netherlands withholds a 15% tax on dividends for Dutch-domiciled companies, the UK does not.
Under Shell’s dual class share system, holders of the “A” shares receive normal dividends and are subject to the tax.
However payments for “B” shares are distributed through a “dividend access mechanism” that essentially sees them streamed through a trust registered on the Channel Island of Jersey, avoiding the Dutch withholding tax.
The arrangement was approved by Dutch tax authorities in a confidential deal, although its legality under European Union law was doubted by some tax experts.
Shell and Unilever had both previously lobbied for the Dutch to get rid of their dividend withholding tax. It was later revealed to be a “decisive” factor for Unilever when it decided to relocate to London.
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