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A dual-listed company or DLC is a corporate structure in which two
corporations A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and r ...
function as a single operating business through a legal equalization agreement, but retain separate legal identities and
stock exchange A stock exchange, securities exchange, or bourse is an exchange where stockbrokers and traders can buy and sell securities, such as shares of stock, bonds and other financial instruments. Stock exchanges may also provide facilities for t ...
listings. Virtually all DLCs are cross-border, and have tax and other advantages for the corporations and their stockholders. In a conventional merger or acquisition, the merging companies become a single legal entity, with one business buying the outstanding
shares In financial markets, a share is a unit of equity ownership in the capital stock of a corporation, and can refer to units of mutual funds, limited partnerships, and real estate investment trusts. Share capital refers to all of the shares of ...
of the other. However, when a DLC is created, the two companies continue to exist, and to have separate bodies of shareholders, but they agree to share all the risks and rewards of the ownership of all their operating businesses in a fixed proportion, laid out in a
contract A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tr ...
called an "equalization agreement". The equalization agreements are set up to ensure equal treatment of both companies’ shareholders in voting and cash flow rights. The contracts cover issues that determine the distribution of these legal and economic rights between the twin parents, including issues related to dividends, liquidation, and corporate governance. Usually, the two companies will share a single
board of directors A board of directors (commonly referred simply as the board) is an executive committee that jointly supervises the activities of an organization, which can be either a for-profit or a nonprofit organization such as a business, nonprofit orga ...
and have an integrated management structure. A DLC is somewhat like a
joint venture A joint venture (JV) is a business entity created by two or more parties, generally characterized by shared ownership, shared returns and risks, and shared governance. Companies typically pursue joint ventures for one of four reasons: to acces ...
, but the two parties share everything they own, not just a single project; in that sense, a DLC is similar to a
general partnership A general partnership, the basic form of partnership under common law, is in most countries an association of persons or an unincorporated company with the following major features: *Must be created by agreement, proof of existence and estoppel. ...
between publicly held corporations. This differs to a cross-listed company, which is (the same company) listed on multiple share markets. Samsung is an example of a cross-listed company (listed both on the Korean and the US stock market).


Examples

Some major dual-listed companies include: *
Carnival Corporation & plc Carnival Corporation & plc is a British-American cruise operator with a combined fleet of over 100 vessels across 10 cruise line brands. A dual-listed company, Carnival is composed of two companies – Panama-incorporated, US-headquartered Carniv ...
(Panama/UK 2003) — Carnival Corporation (
NYSE The New York Stock Exchange (NYSE, nicknamed "The Big Board") is an American stock exchange in the Financial District of Lower Manhattan in New York City. It is by far the world's largest stock exchange by market capitalization of its liste ...
), Carnival plc (
London Stock Exchange London Stock Exchange (LSE) is a stock exchange in the City of London, England, United Kingdom. , the total market value of all companies trading on LSE was £3.9 trillion. Its current premises are situated in Paternoster Square close to St Pau ...
, LSE) *
Investec Investec is an Anglo-South African international banking and wealth management group. It provides a range of financial products and services to a client base in Europe, Southern Africa, and Asia-Pacific. Investec is dual-listed on the London S ...
(South Africa/UK 2002) — Investec plc (LSE), Investec Limited (JSE) * Ninety One (South Africa/UK 2020) — Ninety One plc (LSE), Ninety One Limited (JSE) * Rio Tinto (Australia/UK 1995) — Rio Tinto Limited (ASX), Rio Tinto plc (LSE) Major dual-listed companies undergoing reorganization into a different form includes: * BHP (Australia/UK 2001) — BHP Group Limited (
Australian Securities Exchange Australian Securities Exchange Ltd or ASX, is an Australian public company that operates Australia's primary securities exchange, the Australian Securities Exchange (sometimes referred to outside of Australia as, or confused within Australia as ...
, ASX), BHP Group plc (LSE) Other companies that were previously dual-listed include: * ABB (Sweden/Switzerland 1988) — ABB AB, ABB AG/S.A. *
Allied Zurich Zurich Insurance Group Ltd is a Swiss insurance company, headquartered in Zürich, and the country's largest insurer. As of 2021, the group is the world's 112th largest public company according to ''Forbes'' Global 2000s list, and in 2011 it ran ...
(now Zurich Insurance Group) (UK/Switzerland 1998-2000) *
Reckitt Benckiser Reckitt Benckiser Group plc, trading as Reckitt, is a British multinational consumer goods company headquartered in Slough, England. It is a producer of health, hygiene and nutrition products. The company was formed in March 1999 by the merge ...
(now Reckitt) (UK/Netherlands 1999-2021) — Reckitt Benckiser plc, Reckitt Benckiser N.V. *
Brambles A bramble is any rough, tangled, prickly shrub, usually in the genus ''Rubus'', which grows blackberries, raspberries, or dewberries. "Bramble" is also used to describe other prickly shrubs, such as roses (''Rosa'' species). The fruits includ ...
(Australia/UK 2001-2006) *
Dexia Dexia N.V./S.A., or the Dexia Group, is a Franco-Belgian financial institution formed in 1996. At its peak in 2010, it had about 35,200 members of staff and a core shareholders' equity of €19.2 billion. In 2008, the bank entered severe ...
(Belgium/France 1996-2000) * Perfetti Van Melle (Italy/Netherlands 2001) — Perfetti Van Melle S.p.A., Perfetti Van Melle N.V. *
Eurotunnel Getlink, formerly Groupe Eurotunnel, is a European public company based in Paris that manages and operates the infrastructure of the Channel Tunnel between England and France, operates the Eurotunnel Shuttle train service, and earns revenue ...
(France/UK 1986-2005) * Fortis (Belgium/Netherlands 1990-2001) * Mondi Group (South Africa/UK 2007-2019) — Mondi Limited (JSE), Mondi plc (LSE) * Nordbanken/Merita (Sweden/Finland 1997-2000) *
Royal Dutch Shell Shell plc is a British multinational oil and gas company headquartered in London, England. Shell is a public limited company with a primary listing on the London Stock Exchange (LSE) and secondary listings on Euronext Amsterdam and the New ...
(UK/Netherlands 1907-2022) — Royal Dutch Shell plc, Royal Dutch Shell N.V. * SmithKline Beecham (UK/US 1989-1996) *
Thomson Reuters Thomson Reuters Corporation ( ) is a Canadian multinational media conglomerate. The company was founded in Toronto, Ontario, Canada, where it is headquartered at the Bay Adelaide Centre. Thomson Reuters was created by the Thomson Corp ...
(UK/Canada 2008-2009) *
RELX RELX plc (pronounced "Rel-ex") is a British multinational information and analytics company headquartered in London, England. Its businesses provide scientific, technical and medical information and analytics; legal information and analytics; ...
(UK/Netherlands 1993-2018) — RELX plc, RELX N.V. *
Unilever Unilever plc is a British multinational consumer goods company with headquarters in London, England. Unilever products include food, condiments, bottled water, baby food, soft drink, ice cream, instant coffee, cleaning agents, energy dri ...
(UK/Netherlands 1930-2020) — Unilever plc (LSE), Unilever N.V. (
Euronext Amsterdam Euronext Amsterdam is a stock exchange based in Amsterdam, the Netherlands. Formerly known as the Amsterdam Stock Exchange, it merged on 22 September 2000 with the Brussels Stock Exchange and the Paris Stock Exchange to form Euronext. The ...
)


Motivations for adopting a DLC structure

A dual-listed company structure is effectively a merger between two companies, in which they agree to combine their operations and cash flows, and make similar dividend payments to shareholders in both companies, while retaining separate shareholder registries and identities. In virtually all cases, the two companies are listed in different countries. There are often tax reasons for companies from different jurisdictions to adopt a DLC structure instead of a regular merger where a single share is created. A
capital gains tax A capital gains tax (CGT) is the tax on profits realized on the sale of a non-inventory asset. The most common capital gains are realized from the sale of stocks, bonds, precious metals, real estate, and property. Not all countries impose a c ...
could be owed if an outright merger took place, but no such tax consequence would arise with a DLC deal. Differences in tax regimes may also favour a DLC structure, because cross-border dividend payments are minimized. In addition, there may be favourable tax consequences for the companies themselves. Once companies have chosen a DLC structure, there can be major tax obstacles to cancelling the arrangement. Issues of national pride may sometimes also be involved; where both parties to a proposed merger or takeover are in a strong position and do not ''need'' to merge or accept a takeover, it can be easier to push it through if the country with the smaller business is not "losing" its corporation. A third motive is the reduction of investor flow-back, which would depress the price of the stock of one of the firms in their own market if the merger route were used instead. That is, some institutional investors cannot own the shares of firms domiciled outside the home country or can only own such shares in limited quantity. In addition, in a merger, the non-surviving firm would be removed from all the indices. Index tracking funds would then have to sell the shares of the surviving company. With the DLC structure, all of this would be avoided. A fourth motive is that DLCs do not necessarily require regulatory (
anti-trust Competition law is the field of law that promotes or seeks to maintain market competition by regulating anti-competitive conduct by companies. Competition law is implemented through public and private enforcement. It is also known as antitrust ...
) consent and may not be constrained by the requirement of foreign investment approval. Finally, the access to local capital markets may be reduced when a quotation disappears in a regular merger. This is based on the idea that local investors are already familiar with the company from the pre-DLC period. However, the DLC structure also has disadvantages. The structure may hamper transparency for investors and reduce managerial efficiency. In addition, issuing shares in a merger and capital market transactions (such as SEOs,
share repurchase Share repurchase, also known as share buyback or stock buyback, is the re-acquisition by a company of its own shares. It represents an alternate and more flexible way (relative to dividends) of returning money to shareholders. When used in coord ...
s, and
stock split A stock split or stock divide increases the number of shares in a company. For example, after a 2-for-1 split, each investor will own double the number of shares, and each share will be worth half as much. A stock split causes a decrease of mark ...
s) are more complex under the DLC structure.


Mispricing in DLCs

The shares of the DLC parents represent claims on exactly the same underlying cash flows. In integrated and efficient financial markets, stock prices of the DLC parents should therefore move in lockstep. In practice, however, large differences from theoretical price parity can arise. For example, in the early 1980s Royal Dutch NV was trading at a discount of approximately 30% relative to Shell Transport and Trading PLC. In the academic finance literature, Rosenthal and Young (1990) and Froot and Dabora (1999)Froot, K.A., and E.M. Dabora, 1999, How are stock prices affected by the location of trade?, Journal of Financial Economics 53, 189-216. show that significant mispricing in three DLCs (Royal Dutch Shell, Unilever, and Smithkline Beecham) has existed over a long period of time. Both studies conclude that fundamental factors (such as currency risk, governance structures, legal contracts, liquidity, and taxation) are not sufficient to explain the magnitude of the price deviations. Froot and Dabora (1999) show that the relative prices of the twin stocks are correlated with the stock indices of the markets on which each of the twins has its main listing. For example, if the
FTSE 100 The Financial Times Stock Exchange 100 Index, also called the FTSE 100 Index, FTSE 100, FTSE, or, informally, the "Footsie" , is a share index of the 100 companies listed on the London Stock Exchange with (in principle) the highest marke ...
rises relative to the
AEX index The AEX index, derived from Amsterdam Exchange index, is a stock market index composed of Dutch companies that trade on Euronext Amsterdam, formerly known as the ''Amsterdam Stock Exchange''. Started in 1983, the index is composed of a maximum ...
(the Dutch stock market index) the stock price of Reed International PLC generally tends to rise relative to the stock price of Elsevier NV. De Jong, Rosenthal, and van Dijk (2008)de Jong, A., L. Rosenthal and M.A. van Dijk, 2008, The Risk and Return of Arbitrage in Dual-Listed Companies, June 200

/ref> report similar effects for nine other DLCs. A potential explanation is that local market sentiment affects the relative prices of the shares of the DLC parent companies. Because of the absence of "fundamental reasons" for the mispricing, DLCs have become known as a textbook example of
arbitrage In economics and finance, arbitrage (, ) is the practice of taking advantage of a difference in prices in two or more markets; striking a combination of matching deals to capitalise on the difference, the profit being the difference between t ...
opportunities, see for example Brealey, Myers, and Allen (2006, chapter 13).


Arbitrage in DLCs

Price differences between the two markets in which dual-listed companies are listed (also called mispricing) has led to a number of financial institutions trying to exploit the mispricing by setting up
arbitrage In economics and finance, arbitrage (, ) is the practice of taking advantage of a difference in prices in two or more markets; striking a combination of matching deals to capitalise on the difference, the profit being the difference between t ...
positions in such circumstances. These arbitrage strategies involve a
long position In finance, a long position in a financial instrument means the holder of the position owns a positive amount of the instrument. The holder of the position has the expectation that the financial instrument will increase in value. This is known a ...
in the relatively underpriced part of the DLC and a short position in the relatively overpriced part. For example, in the early 1980s an arbitrageur might have built up a long position in Royal Dutch NV and a short position in Shell Transport and Trading plc. This position would have yielded profits when the relative prices of Royal Dutch and Shell converged to theoretical parity. An internal document of
Merrill Lynch Merrill (officially Merrill Lynch, Pierce, Fenner & Smith Incorporated), previously branded Merrill Lynch, is an American investment management and wealth management division of Bank of America. Along with BofA Securities, the investment ba ...
investigates arbitrage opportunities in six DLCs. Lowenstein (2000)Lowenstein, R., 2000, When genius failed: The rise and fall of Long-Term Capital Management, Random House. describes arbitrage positions of the hedge-fund
Long-Term Capital Management Long-Term Capital Management L.P. (LTCM) was a highly-leveraged hedge fund. In 1998, it received a $3.6 billion bailout from a group of 14 banks, in a deal brokered and put together by the Federal Reserve Bank of New York. LTCM was founded in ...
(LTCM) in Royal Dutch/Shell. LTCM established an arbitrage position in this DLC in the summer of 1997, when Royal Dutch traded at an eight to ten percent premium. In total $2.3 billion was invested, half long in Shell and the other half short in Royal Dutch (Lowenstein, p. 99). In the autumn of 1998 large defaults on Russian debt created significant losses for the hedge fund and LTCM had to unwind several positions. Lowenstein reports that the premium of Royal Dutch had increased to about 22 percent and LTCM had to close the position and incur a loss. According to Lowenstein (p. 234), LTCM lost $286 million in equity pairs trading and more than half of this loss is accounted for by the Royal Dutch/Shell trade. The example of LTCM is a good illustration of why arbitrage by financial institutions has not succeeded in eliminating the mispricing in DLCs. An important characteristic of DLC arbitrage is that the underlying shares are not convertible into each other. Hence, risky arbitrage positions must be kept open until prices converge. Since there is no identifiable date at which DLC prices will converge, arbitrageurs with limited horizons who are unable to close the price gap on their own face considerable uncertainty. De Jong, Rosenthal, and van Dijk (2008) simulate arbitrage strategies in twelve DLCs over the period 1980-2002. They show that in some cases, arbitrageurs would have to wait for almost nine years before prices have converged and the position can be closed. In the short run, the mispricing might deepen. In these situations, arbitrageurs receive margin calls, after which they would most likely be forced to liquidate part of the position at a highly unfavorable moment and suffer a loss. As a result, arbitrage strategies in DLCs are very risky, which is likely to impede arbitrage.


Notes


External links


Background information, literature, data, and research on DLCs
on the website of Mathijs A. van Dijk. * Chad A. Pasternack
Dual Listed Company Structures as a Defense Against Liability
51 Gonzaga Law Review 159 (2015). {{Stock market Types of business entity