(News Bulletin 247) – This operation allows a company to bring its share price back to a more reasonable level, without penalizing existing shareholders.

Known for its brands Le Gaulois, Maître Coq, Loué and Marie, the European leader in poultry LDC is also a company that has been listed on the stock exchange since 1995. Its share price currently has a face value of over 100 euros, as it is trading at 140.50 euros at the close on Friday.

The group therefore felt that it was time to make its shares more affordable for small shareholders. It announced this week that it wanted to split the nominal value of its shares, with a view to “making LDC shares more accessible, particularly to individual shareholders” and therefore “increasing the liquidity of the stock”.

An indicator of stock market vitality

Thus, for each LDC share held, investors will receive two shares from September 30, with the value of each mechanically divided by two. Taking into account Thursday’s closing price, the LDC shareholder will no longer hold one share at 140 euros but two shares at 70 euros, to reflect this division of the nominal value by two.

The simplest analogy is to imagine that instead of a large, indigestible cake to eat, you receive two slices of the same cake which will be easier to savor.

Moreover, the group based in Sablé-sur-Sarthe is not new to this. LDC had already halved its share in September 2016 to make it accessible to as many people as possible.

For the shareholder, the transaction is completely neutral. And for future investors, it puts the stock within reach of a greater number of people and allows for more finely split orders if necessary. But for all that, a “stock split” is not a non-event: it is above all an indicator of strong stock market strength, unlike the consolidation which is the result of a sharp decline in the stock.

Last June, the darling of the markets, Nvidia, had divided the nominal value of its shares by 10, which was trading at more than $1,200, a testament to its brilliant stock market performance with the rise of generative artificial intelligence.

A consolidation of shares, never for me

If the crossing of this psychological threshold of 1,000 dollars pushed Nvidia to proceed with a division of the nominal value of its shares, some companies do not see it that way. The best known being Berksihre Hathaway which still wants to maintain its class A share at a stratospheric level of 675,170 dollars.

According to Investopedia, Warren Buffett believes that a split of Class A shares would go against the principles of his investment philosophy, while assuming that this “barrier to entry was intentional,” CNBC recalled.

“We want to attract shareholders who are as investment-oriented as we can be, with long-term horizons,” he said at the 1995 annual shareholder meeting. “If Berkshire split its stock and lowered its price, we would have a shareholder base that would not have the level of sophistication and the synchronization of objectives that we have today,” he said.

However, the Oracle of Omaha is not totally opposed to this stock split mechanism. Class B shares created in 1996 to offer individual investors a lower-cost way to invest in Berkshire Hathaway have already been split in the past, recalls Investopedia.

In France, investors are beginning to dream of a division of the nominal value of certain shares, including the coveted Hermès International, symbol of French luxury. The share is currently trading at 1,900 euros, the price of a small tunic or bracelet, whereas it was worth only the equivalent of 5.08 euros when it was listed on the stock market in June 1993.

While there is evidence of a three-way split of Hermès shares in 2006 in the past, the management of the luxury house does not intend to repeat such an operation. It dismissed this possibility out of hand at its General Meeting in 2022, as our colleagues at Investir point out.

While this operation is often a sign of stock market vitality, there is also the opposite operation. This is the stock consolidation or “reverse split” which is the mirror operation of the stock split. The stock consolidation results in a reduction in the number of shares owned by shareholders at the time of the operation.

A company can decide to consolidate its shares if it considers that its stock price is too low. This was the case of Emeis, the former Orpea, which at the beginning of the year carried out a consolidation of 1,000 of its shares, with a view to regaining attractiveness after a heavy and painful restructuring. The group had carried out capital increases, which meant that the number of shares in circulation had ended up at… 159 billion.