The sorry state of Britain's equity markets has been well-documented. Across all UK indexes there have been just three initial public offerings so far this year after over 100 de-listings in 2023. The noise that this is only the beginning is getting louder.
As my Bloomberg Opinion colleague Javier Blas wrote recently, there's a real threat of Shell Plc, with the highest market capitalization on the UK gauge, exiting, with other giants possibly following. US equity valuations make it hard to argue for staying put.
Sure, the drivers that might propel a multinational toward the world’s largest equity market apply to a scary number of major UK-listed firms. A wander down the member weightings of the FTSE 100 makes it more than an academic exercise.
But for most, chasing a US listing could amount to little more than a reach for fool’s gold. Of 23 British firms that have raised over $100 million in the US in the past decade, six have delisted and 13 were trading lower than the prices at which they listed as of mid-2023, a London Stock Exchange official warned investors last year. And there’s no guarantee that big, liquid stocks like Shell will get a bump from a narrowing of relative discounts to comparable US-listed companies. What’s more, the move itself is expensive and complicated; it takes ages to switch primary listings, particularly if changing domicile and headquarters.
So let’s consider the arguments. Remember, it's up to the shareholders, not where management sees greater rewards. So what should be on the agenda to decide whether to stay or go?
One straightforward test: Easily understood business models that are preferably household names, requiring little education to a new audience of what the company does and what its brands are.
Any shift has to pass the regulatory sniff test. The UK is amazingly laissez-faire on allowing foreign buyers and private equity to plunder bargain British enterprises, or indeed UK-domiciled firms to list abroad. But even open-door Britain has its limits. Ultimately the UK government was unsuccessful in stopping Arm Holdings Plc from listing on the Nasdaq, which was its obvious place as its strong post-IPO performance attests.
Heavily regulated industries, such as banking, are pretty much non-starters or those with static, domestic UK (or non-US) customer bases.
Is the business revenue truly international with, say, a large US presence? Would a UK company generating a majority of its revenue outside the US be of interest, even if primarily US-listed, for American investors? Global sectors such as oil, pharmaceuticals, tobacco, consumer goods make comparable valuations so much easier — even if there are always differences.
For instance, Anglo American Plc’s London listing is now in play after last week’s bid from BHP Group Ltd., which switched its main listing to Sydney from the UK in 2022. Rio Tinto Plc must be evaluating whether it’s worth retaining its main UK listing in favor of Australia, and it’s evident Baar, Switzerland-headquartered Glencore Plc has its eyes on shifting to the US.
Size matters. While there’s a handful of constituents in the S&P 500 below a $10 billion market cap, it's not going to be easy to attract attention in the biggest market of all. That rules out all but a few dozen UK stocks, unless there’s a truly compelling business that’s better rewarded in the US. That means AstraZeneca Plc and GSK Plc, plus its recent spinoff Haleon Plc, have some thinking to do.
Of course, there are other indexes, such as the Nasdaq, a possible destination for Ocado Group Plc, which aspires to a US tech-driven valuation despite its UK food-delivery reality. But with a current value of under $4 billion it wouldn’t even come close to the Nasdaq 100, whose smallest member has a $12 billion market cap.
Liquidity matters. Proximity to the shareholder base ought to be a management goal. Leaving aside index funds, such as Vanguard Group's suite, it's where active shareholders (who vote at annual general meetings) are predominantly based. Most large-caps have American Depositary Receipts (ADRs) or equivalent — though these are often illiquid. There's little point shifting unless volumes outside the main listing venue are both decent and rising.
Are there sufficient new marginal buyers prepared to pay a higher premium for the same stock listed elsewhere? Most US mutual, endowment and pension funds, let alone retail investors, can buy overseas shares but prefer to keep it simple at home — no different time zones, foreign rules or currencies to compare. The balance is increasingly heavily skewed domestically as winners are on the doorstep. That doesn't make US investors dumb or lazy — quite the reverse as the equity risk culture is far more advanced. But if it's easier and more liquid, what's not to like about staying home?
It's no coincidence that most UK funds are much more weighted to US equities than domestic stocks. They also usually have a fiduciary requirement to vote in favor of changes that enhance shareholder value.
So management and shareholders alike need to be realistic on how many of the above criteria are being filled. If it's not most of them, then shut down speculation and stick to their knitting — just do it better. Or wait for a private equity bidder. It's a major distraction shifting location and listing so it has make clear long-term sense. However, for some of the UK's crown jewels contemplating joining the action with the cool kids, resistance may prove futile.
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