What happened?
It has been revealed that in 2021, Shell's top executives explored the idea of moving the energy firm away from the UK, to the US.
Wael Sawan, the new chief executive officer of the company, was one of the people who discussed the advantages of moving its headquarters and listing to the States.
However, it was ultimately decided that Shell would vacate from the Netherlands, but consolidate its base and stock market listing in London.
Image Courtesy of The Guardian.com
Why have I chosen this story?
I find Shell very interesting. They're often in the news for one thing or the other, usually someone or a group is trying to take legal action against them. The article reminded me of a recent podcast episode I did, where we discussed over 11,000 Nigerians bringing a damages claim against the company (you can listen to it here).
It reminded me of just how big Shell is, how any compensation they have paid, (from a financial standpoint), has not really affected them as a business. The fact that they explored the idea of moving to the US (in effect, it was just to make shareholders richer) highlights their drive to make profit, in any way they can- even dancing with the idea of moving from one stock market, to another.
A little more context...
Shell is a multinational oil and gas company. It's also a public limited company (PLC), which has a primary listing in London and secondary listings on Euronext Amsterdam and the New York Stock Exchange. It's the UK's largest company, bringing in a revenue of around £316bn and boasts of a market cap of around £716bn.
In January, Shell reported $40bn in profit, which sparked an outcry and calls for a higher windfall tax for such companies. Shell, BP, ExxonMobil and other oil and gas firms, have been making huge profits, due to the increase in gas prices all over the world. Russia's war in Ukraine, and the after effects of the Covid-19 lockdowns are some reasons for this.
Image Courtesy of Dineshbakshi.com
Possible reasons as to why...
Companies who want to list on any stock market, have to go through stringent rules and measures to be allowed to list. Different countries have different rules, some of which may attract companies to list on certain stock markets, compared to others.
Keep your eye on your competitors... Shell's big time rivals, such as ExxonMobil and Chevron are listed on the New York Stock Exchange, and they both carry a much higher valuation. A higher valuation is what shareholders like, because it means the price of their shares also go up, which means more money for them.
A weaker pound anyone? Former Chancellor, Kwasi Kwarteng's disastrous mini-budget back in September 2022, led to government intervention and caused the pound to plummet even more. All the while, the dollar was relatively stable against the pound. In times of financial hardship, traders usually flock to the dollar, due to its resiliency and it's seen a safe bet against other foreign currencies. I'm no Economist, but I do know that economies want their currencies to be strong because it brings several benefits. For example, a strong currency can lead to lower inflation, because the cost for importing goods has decreased (which then leads to cheaper prices for people). A weak currency can attract private equity firms, because it means that they can swoop in, acquire a firm at a cheaper price and try and get a decent return from it down the line.
Shell has a listing in the US...but this is a secondary one. A secondary listing is when a security is listed on a stock exchange other than on the exchange where it has its primary listing, which in this case, is the UK. Companies usually do this to access new markets to raise capital.
Image Courtesy of BBC.co.uk
Other firms have made similar moves...
Shell isn't the only company to consider making such a move, other firms have gone further in this process, or even moved out of the UK altogether.
For example, consumer goods company, Unilever drew up plans to leave the UK back in 2018, but it wasn't followed through after pressure from shareholders. Plumbing group Ferguson and miner firm BHP, have made the move to move their primary listings out of the UK altogether. One reason for this, is because they moved to countries where they did most of their business.
Earlier in the week, it was reported that the worlds largest buildings material company, CRH, plans to move out of London, for a New York listing. Heating products supplier, Ferguson, also left the FTSE 100 stock market, for a New York based listing. Such occurrences could cause many to question the UK's economic resiliency and status as a financial centre. Sad times for the UK market indeed.
Image Courtesy of StructuralEngineeringBasics.com
Analysis (S.W.O.T):
S- If the directors gave the greenlight, then it would have been good for Shell-their valuation and share price would have increased. It also would have been good for the US-they would have added another important firm to their already high-profile portfolio of global companies. However, these are just factors that would have occurred, but haven't. A real strength is that Shell's primary listing is in the UK...for now?
Image Courtesy of Coindesk.com
W- They're going through it right now. For example, they're being hit with a plethora of legal suits- Shell's directors have been sued, after the claimant ClientEarth said their climate strategy was 'flawed' and that criticised it for being 'inadequate to meet climate targets'. Shell has also won a bid to limit a legal suit over Nigeria's oil spill in the Delta state. I'm pretty sure their legal team always have their hands full at this point.
Not to mention the calls for a higher windfall tax on major oil and gas companies benefitting from the high energy prices. Seeing as we're in a cost of living crisis, inflation and interest rates are still high, I wouldn't be surprised to see the UK government buckle to these demands.
O- This is a decision they have made right now. What if the Shell's top executives change their mind in the future? Not only would this be bad for the UK, but it could mean that investor confidence for the UK as a great place to list, decreases. However, the UK use this in a positive light and take this as a wakeup call to figure out ways to make the UK a more attractive place to list, and potentially bring former companies back.
T- Is Shell's decarbonisation on hold? These massive increases in profit, not just for Shell but for similar companies alike, call into question such companies commitments to try and reduce their carbon emissions and introduce more environmentally friendly practices and measures into the industry. However, such a sequence in priorities could backfire in the future. Climate change is becoming more and more important, not just to people, but to investors alike. People and companies want to become more greener, and so ESG will very well likely be on the top of the list, in terms of priorities. Could the various ESG ratings shift from voluntary to mandatory in the next coming years?
Image courtesy of Greenpower-tehcnology.co.uk
Final thoughts...
I think this is actually a big story, mainly due to the wider implications and various factors that relate to this. I started working on this early on in the week, and since then, I've been seeing more and more companies decide to list in the US, over the UK, and all I can think right now is 'wow' and 'why?'. I hope this doesn't become a trend, it would be a very dark and worrying one if more companies make similar decisions.
This FT article does a good job of suggesting some issues as to why companies are leaving. I've been trying to think of ways the UK can make itself more attractive to firms who are thinking of listing too...
What are your thoughts on this week's story? Do you think we'll be seeing more and more companies list in the US over the UK? Do you think the UK should step in and do more? I'd love to know, either message me on any of my social media platforms, or send me an email at: thelegalchristian@hotmail.com
Until next time, stay curious :)