Two European energy giants, France’s TotalEnergies and Britain’s Shell, are considering moving their stock listings to New York, as pressure mounts to improve their valuations, which lag behind their American counterparts.
Switching their listings to the United States would be a blow to European stock markets, where they are among the largest publicly traded companies.
In the past, it would have been almost unthinkable for TotalEnergies, one of France’s most prominent companies, to consider moving its main stock listing from Paris. But the company’s chief executive, Patrick Pouyanné, recently spoke to analysts about considering such a change.
“There was a discussion with the board of directors,” Pouyanné said on a recent call to discuss earnings. “We all agreed that we need to look at it seriously.”
Shell, Europe’s largest energy company, has said it may consider a similar move. But a change is not currently on the table, said Wael Sawan, chief executive of the company, which recently moved its headquarters from The Hague in the Netherlands to London, where it is the largest publicly traded company by market value.
Any measure would reflect the almost irresistible appeal of the United States as a center of energy production and innovation, as well as investment.
The United States has become the world’s leading oil producer and exporter of liquefied natural gas. Europe’s oil production, by contrast, is in decline and many European governments are skeptical about the oil and gas industry, which remains crucial to global energy supplies despite concerns about climate change. The Biden administration’s Inflation Reduction Act may also give the United States an advantage in cleaner energy technologies such as hydrogen and electric vehicles.
A key factor troubling these companies is the large differential in valuation that investors are willing to pay for US-based energy giants compared to their European counterparts.
The two largest American energy companies, Exxon Mobil and Chevron, enjoy a ratio of their share prices to their earnings, a valuation metric, that is at least a third higher than that of their European rivals, according to a recent study by Giacomo Romeo, analyst at the investment firm. Jefferies Bank. The New York listing debate is “becoming a key issue” among investors, he said in a note to clients.
A lower stock valuation not only deflates executives’ egos, but also puts these companies at a disadvantage by using their shares to participate in a wave of industry consolidation. ExxonMobil, for example, recently bought Pioneer Natural Resources, a major shale drilling company, for $60 billion, while Chevron reached a deal to pay $53 billion for Hess, although legal issues over Guyana are complicating the sale. . Their European peers have been largely left out.
European companies have come to consider measures such as going public in the United States as a potential way to bolster their valuation and close the gap with their rivals. Pouyanné, for example, said the number of North American shareholders in TotalEnergies was growing, but big investors faced obstacles to putting money into the French company’s shares, including time differences with European markets and exchange rate fluctuations. .
But any move could face blowback. French Finance Minister Bruno Le Maire has already vowed to fight a move by TotalEnergies. “I’m here to make sure that doesn’t happen,” he said.
It would be difficult to overstate the importance of TotalEnergies to France. The company is a key domestic energy supplier and a major foreign investor, and is leading France’s transition to low-carbon energy through investments in solar, wind and other cleaner technologies.
A move by Shell seems more logical in some ways. It is one of the largest foreign investors in the United States, with more capital there than in any other country.
Shell has suffered a series of setbacks in Europe in recent years, including a court ruling that said it needed to accelerate its climate change efforts. There are also questions about whether the London Stock Exchange, which has fallen in popularity since Brexit, is the right place for a large company like Shell, which has a market value of around $232 billion.
It is also debatable how effective a move towards the United States would be in closing the valuation gap. Jefferies’ Romeo said changing primary listings alone may not be enough to eliminate the spread, adding that companies may also need to move their headquarters to be included in U.S. index funds, something Pouyanné has said. that I wouldn’t do.
Sawan has said he believes Shell shares are cheaper than they should be. However, he is focusing on efforts to boost the stock through better financial performance and greater rewards for investors. If that effort doesn’t pay off, Shell could consider action.
“We have a duty to look at every opportunity to beat that valuation,” he told analysts on May 2.