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Dual listings, also referred to as “Siamese twins” or “dual-headed” enterprises, are atypical, and ostensibly a vanishing corporate structure in which two legally distinct companies operate as if they were a single economic enterprise, retaining independent legal identities. A set of contractual agreements pool operations and link the cash flows and control of the dual-listed companies (DLCs) into a single entity. Profit-sharing and other arrangements associate rights, cash flows, and ownership of one entity of the pair to those of the other, based upon a predefined ratio, thereby implying that ownership in either of the pair should be equivalent to the other contractually. Because each pair's shares manifest ownership in a different company, shares between the pairs are not fungible. Unlike a cross-listing, which offers investors the same shares on multiple markets, a DLC's shares are associated with discrete underlying companies.

In most cross-border combinations, a single holding company combines the merging companies. Still, dual-listing transactions arose from a desire to merge business operations while retaining individual corporate identities. This separation permitted the involved companies to retain their respective tax jurisdictions, national identities, exchange listings, and distinct shareholder bases. The survival of the discrete legal entities likewise avoids unintended political or tax-related negative synergies that might arise following standard merger or acquisition transactions (U.K. Panel on Takeovers and Mergers 2002).

Although the DLC structure is not unique to specific industries or countries, most historically have involved a U.K.-domiciled pair. Current and historical examples of DLCs include Unilever, a consumer products manufacturer; Royal Dutch Shell, an oil and gas company; Carnival, a cruise line operator; and SmithKline Beecham, a pharmaceutical and consumer healthcare manufacturer (now part of GlaxoSmithKline). At one point in their respective histories, these four companies could be categorized into three forms of dual-listing structures: combined entities, separate entities, and stapled stock.

In the combined entities structure, Companies A and B form a new jointly owned company, which owns the assets of both A and B and subsequently pays dividends to each based on the equalization ratio, but A and B remain separately traded entities (Cleary Gottlieb Stein & Hamilton 2002). Although the businesses merge, legal identities remain independent, making this structure similar to a joint venture model. If a combined entity's structure is infeasible, for instance, due to financial, legal, or other constraints, A and B may choose to merge via a separate entity's structure. In this “synthetic merger,” A and B retain ownership of their respective assets and maintain legal separation, but they operate as if they were a single company (Hancock, Gray, and Sommelet 2002). Finally, effecting a merger through a stapled stock structure involves combining the assets into a jointly held company while preserving A and B's listings (U.K. Panel on Takeovers and Mergers 2002). Unlike in the combined entities structure, the shares of A and B are stapled together and cannot be traded separately, minimizing the price variances that might arise if traded separately. Figure 2.1 distinguishes between simplified ownership structure charts existing for DLCs.

FIGURE 2.1 Dual-listed Shareholder Structures

This figure, modified from the U.K. Panel on Takeovers and Mergers (2002), portrays the three most frequent dual-list-company simplified corporate structures firms may adopt: separate entities, combined entities, and stapled stock. The separate entities and combined entities structures retain two independent shareholder bases, while the stapled stock structure amalgamates the two distinct shareholder bases into a single group.

Source: U.K. Panel on Takeovers and Mergers (2002).

In most DLCs, the two companies combine operationally into a single organization, giving the joint enterprise the same potential scale benefits as a traditional merger, such as purchasing power or vendor consolidation. Unlike in a traditional merger, the separate legal entities survive, preserving certain attributes, such as the source of dividends or domicile. These traits guard against potentially undesirable repercussions from merging. By retaining national identity and source of income, the company usually can maintain its listing on the national stock exchange and index constituency. For example, Unilever NV, a Dutch-registered company, and Unilever PLC, a U.K.-registered company, enjoy membership in both the Euro Stoxx 50 and FTSE 100 indexes. Without the DLC structure, PLC and NV together may not have qualified for membership in both indexes.

The agreements linking DLCs are understandably complex. In some instances, such as in Royal Dutch Petroleum and Shell Transport & Trading's DLC before its unification, the structure creates duplication and inefficiencies. Royal Dutch and Shell each had separate management teams and boards of directors. Even in cases where an identical board of directors manages the DLC, such as for Unilever, agency problems arise if shareholders in the individual parents have conflicting interests. The separate identities of DLCs often cause underrepresentation in value-weighted stock indexes because only one of the pair's market capitalization is considered. Although efficient capital markets suggest that twin share prices should be identical, a corollary of equalization arrangements, historically substantial price deviations occurred and persisted, even for extended periods (Rosenthal and Young 1990). Froot and Dabora (1999) present evidence purporting that DLC stocks exhibit excess comovement with the location at which the shares are traded, irrespective of implied equalization. Furthering this analysis, De Jong, Rosenthal, and van Dijk (2009) explore apparent arbitrage opportunities in 12 pairs of DLCs, determining that market participants cannot easily exploit mispricings due to unique risks of the DLC structure. Finally, equalization and other contractual agreements complicate using the stock as an acquisition currency (FTI Consulting 2018).

Since the early 2000s through 2019, a noticeable trend toward unification has emerged in the subset of DLCs on the market. Between 1990 and 2019, at least 16 companies were organized as multinational DLCs at some point, but only five remained in 2019: Unilever, Rio Tinto, BHP Billiton, Investec, and Carnival. Indeed, in 2017, activist investor Elliott Associates campaigned for BHP Billiton to unify its Anglo-Australian DLC, arguing that the structure is value destructive given the underperformance of the U.K. company (Elliott Associates 2017).

Equalization stipulates that any dividends declared be paid to both twins at the predetermined ratio. Because the U.K. firm's profitability and reserves came under pressure, the Australian firm was required to transfer funds to subsidize dividends to the U.K. shareholders, thus forfeiting an Australian “franking,” or tax, dividend credit. Figure 2.2 provides a list of known firms operating as DLCs.

FIGURE 2.2 Cross-Border Dual-listed Companies

This figure provides a snapshot of 16 (5 current and 11 former) DLCs. While the 1990s experienced a rise in DLC formations, this complicated stock structure has since seemingly fallen out of favor alongside the trend toward “unification” or “simplification” of the corporate structure. Dates shown are the beginning and end dates for the inception and dissolution (if applicable) of the DLC structure.

Unilever Example To contextualize the properties of DLCs, consider Unilever, a transnational consumer goods company, which is the combination of Unilever PLC and Unilever NV, a U.K.- and Dutch-domiciled company, respectively. Unilever PLC's primary listing is on the LSE and Unilever NV's is on the Amsterdam Stock Exchange. Unilever is organized under the separate entities structure: The PLC and NV companies are legally distinct entities, which each fully own their respective operations. Equalization agreements between the two enable them to operate as a single economic entity. According to the Unilever Group (2019), “To avoid punitive taxation levies and the disruption to the business that would result from dividing integrated national companies into their component parts, both companies pooled their interests through a business merger as opposed to a legal merger.” This structure enables non-Dutch investors to invest in Unilever shares without being penalized by Dutch withholding taxes. For example, a British investor is subject to a 15 percent withholding tax on dividends paid to NV shares, but not on dividends paid to PLC shares. Recall that gross dividends may be equalized (adjusted to foreign exchange rate movements), but a British investor in NV shares is disadvantaged relative to a Dutch investor in those same shares on an after-tax basis. The dual-listed structure of Unilever enables a British investor in PLC shares to receive dividends while avoiding the Dutch dividend withholding tax.