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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Imagine, for a moment, that you happened to be a US company pursuing a listing. There would be lots of things to think about. But deciding where to list would not be one of them, given New York is the only game in town. In Europe, however, location has become both a crucial question and a surprisingly meaningless one.
A striking example of this comes courtesy of Vivendi, the French media conglomerate that is pursuing a break up. The group, controlled by the Bolloré family, is listed — and headquartered — in France. It is spinning off its Havas ad agency and Canal+ broadcaster. The former is off to Amsterdam, while the latter will swell the ranks of London’s beleaguered stock market.
This decision is not driven by the geographical footprint of the two companies. Havas does not have an overwhelming Dutch franchise, and while Canal+ is an international broadcaster, with English language films such as Terminator to its credit, it is not a UK business. The presence of highly-valued comparables, too, does not appear to come high on the list. Publicis, the highest-rated ad agency, is listed in Paris.
Rather, the exchanges seem to be competing on governance, flexibility and issuer-friendliness. Havas, for instance, is a relatively small agency, in a field dominated by the likes of Omnicom and Publicis, and might attract a predator. The fact that Euronext allows controlling shareholders to exercise multiple votes — in a more liberal way than, say, France — was part of Vivendi’s considerations.
Such attempts to arbitrage between listings venues underscore the weakness of European exchanges. Daily trading for the European Stoxx 600, is only 0.6 per cent of the free float. On the Nasdaq, it is about double that. There is no single market that issuers are compelled to head to on the grounds of the pools of capital that it attracts.
That leaves the field open for relatively pointless, micro-optimisation attempts. The temptation, then, will be for exchanges to continue to bid for business by relaxing listing rules. Perhaps London, which has softened its stance on dual-class shares, might consider allowing even greater disparities between classes of shareholders to emerge. Managers may also be tempted to seek out locations where say-on-pay guidelines enable discretion or result in fatter pay packets.
There is a role for business-friendly practices, of course, to the extent that they do not turn investors off from investing in equity markets. But Europe’s bourses are leaving themselves open to a new race to the bottom on rules — while failing to deliver on their mission-critical priority of offering a deep liquid marketplace to rival the US.
