Mixed news for British fans of Paddington Bear. The French company behind the movie franchise is planning to list in London shortly, but it will not be joining the FTSE 100 after all. Vivendi, the media conglomerate, still plans to demerge its Canal+ division and list its shares in London on December 16. But, for not entirely clear reasons, it will not make it into prestigious FTSE indices, it said in the prospectus published on Wednesday.
Only last week the investment platform AJ Bell was citing Canal+ as a prime candidate to get a slot in the index of blue chips. In a report entitled “Paddington to the rescue”, it wrote: “Canal+ could be a big hit with investors if the valuation is attractive and it communicates a compelling strategy on how it intends to grow on a standalone basis, freed from the shackles of being owned by a media conglomerate.”
The planned listing is still seen as a bit of a coup for London, bruised after New York was chosen by the Cambridge-based chip design king Arm Holdings for its relisting last year. That such a dominant broadcaster of French sport and supporter of Francophone cinema has snubbed Paris has not gone down well there. Expected to be valued at up to £6 billion, Canal+ would be the biggest new arrival on the London Stock Exchange since the spin-out of Haleon, the toothpaste and vitamins group, from GSK in 2022.
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It would also be a lot more glamorous than the grey line-up of financials and miners that dominate so much of the London market. Canal+’s productions include modern releases such as The Outrun and Paddington in Peru, while its back catalogue includes the feted Ealing comedies and Carry On series. So not only Saoirse Ronan and Ben Whishaw but also Hattie Jacques and Alec Guinness — what’s not to like?
Ambitious Canal+ also has the growth prospects and the hunger for deals to put it on a high stock market rating and to stimulate high volumes of trading in its shares. It operates in 50 countries, with two thirds of its pay-TV subscribers outside France. An agreed takeover of MultiChoice, a pan-African operator, is set to expand its footprint wider still.
Its failure to make it into the FTSE indices will be a disappointment, however. FTSE index membership guarantees greater visibility and wider ownership for any company. Index tracking funds with firepower of $133 billion automatically buy the shares of FTSE index constituents. Another $394 billion of actively managed funds use the FTSE indices as their performance yardstick, and are therefore more likely to hold its constituent shares. The FTSE 100 is still a club that carries a little cachet — for managers, staff, advisers and suppliers.
The stumbling block for Canal+ seems to be a probable stake of 30.6 per cent held by the Bolloré family once the company is demerged. The family do not want to be bound by governance and the City’s takeover code rules requiring shareholders to make a bid for the whole company when their stake goes over the 29.9 per cent threshold, though why they can’t simply apply for a waiver, as other FTSE constituent companies have done, isn’t clear.
Eligibility for FTSE index inclusion is complicated. The watering down of the listing rules over the summer has, if anything, made it more so. The London Stock Exchange’s premium and standard listing categories have been merged into a single bracket. That has led to several hundred companies that formerly had a “standard” badge being corralled into a category called Equity Shares (Transition). Not all EST-branded companies will get admitted into the LSE’s more stringent category of Equity Shares (Commercial Companies) and not all ESCC-badged companies will then make it further into the inner sanctum for FTSE inclusion.
Thickets of sometimes overlapping rules and thresholds determine entry to each. Minimum levels of liquidity, corporate governance, free float, voting power and more are applied, not always entirely clearly. For instance, the country of incorporation matters hugely — but not always, and can be trumped by other factors.
FTSE Russell’s “ground rules” for FTSE inclusion run to 37 pages and are not for the fainthearted. Just the criteria for judging a company’s nationality can include the location of its operations, the location of its headquarters, where its managers meet, the nationality of its directors and, finally, “the perception of investors”. The index compilers understandably want to be seen as objective, rules-based and neutral, but subjectivity is inevitable.
It has been more than three months since the reforms to the listing rules were put in place — changes billed at the time as the biggest change to the share market regime in 40 years. They were, it was hoped, going to usher in a new era of more exciting listed companies led by swashbuckling founders with unlimited ambition.
The biggest probable new FTSE 100 debutant so far is Coca-Cola Europacific Partners. This gigantic bottler of fizzy drinks employs 42,000 people in 31 countries and has been a model of quiet efficiency. But it is not quite the tech-driven disruptive innovator envisaged by London’s reformers when they changed the rules. It will probably get added to the FTSE 100 in the March 2025 reshuffle.
Shein, the Chinese retailer, may not make it as far as a London listing. But it is unlikely to get into the FTSE listings even if it does, because of the free float rules. Even after the changes, non-UK incorporated businesses such as Shein would have to have a free float of 25 per cent. For a business valued at £50 billion, according to some, that would require buyers for £12.5 billion of stock.
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Wise, the cross-border money transfer firm, is a better bet for FTSE inclusion. The rules on dual voting structures are not so tight as to prevent Kristo Kaarmann, its founder and chief executive, getting FTSE 100 status, though he might not be in any great hurry to move into the public eye after the £350,000 fine this week over his failure to disclose to his regulator a tax evasion finding by HMRC.
Other possible new entrants to the FTSE 250 include Deliveroo and Oxford Nanopore. All told, FTSE Russell has identified three companies of FTSE 100 size, five of FTSE 250 size and ten of small-cap size that could in theory gain FTSE index membership.
Two other observations. There’s a good case for FTSE to put extra-strict eligibility requirements in place. Tracker funds blindly buy constituent companies. London may or may not be right to strip away some of the listing rule safeguards. That suits active investors with the time to scrutinise individual companies and a “buyer beware” mindset. It doesn’t suit passive investors.
Second, opening up the London market to more overseas-based companies makes it even more imperative that pension funds are not mandated to buy London-listed stocks — something the new government has not ruled out. Ministers shouldn’t be telling pension funds where to invest, full stop, but they certainly shouldn’t be mandating investment in companies with little or no connection to Britain beyond a stock market quotation.
Patrick Hosking is Financial Editor of The Times
