London is suddenly seeing a flurry of multinational companies favor New York as their primary or sole listing venue. There’s some corporate finance logic to such moves. It may be more efficient for a firm to report its earnings and have its shares trade in the currency of its dominant cashflow — often dollars. If it’s expanding in the US via acquisition, New York-listed shares can be used as payment. And a US listing also means being more visible to America’s large analyst and investment community.
Moreover, when Dublin-based but London-listed CRH Plc said last week that it would benefit from a primary US listing, the building-materials firm cited “commercial” and “operational” opportunities. Maybe looking more like a local might help it win business in the current “Buy American” environment.
There are specific push factors, too. The UK’s domestic investor base has dwindled as pension funds have shifted into bonds. To the extent there’s local support, income funds have a loud voice. The consequence is a FTSE 100 Index which has barely grown in two decades and pays out high dividends, arguably at the expense of companies investing for future growth.
CRH reckoned it would benefit from switching its main listing to London from Dublin in 2011. But trading volumes shrank. Microchip designer Arm Ltd. was traded in London prior to being bought by Softbank Group Corp. in 2016. While Arm may be sufficiently big and differentiated to attract a strong following wherever it lists, Softbank favors taking it public again in New York, and you can see the attraction of maximizing its appeal to US portfolio managers.
As things stand, CRH intends to remain based in Ireland, and there’s no immediate suggestion of Arm shifting its HQ from Cambridge. So what makes Ferrovial different?
The company has suggested that a planned relocation to the Netherlands is required to “facilitate” a future US listing, implying that Spanish market rules preclude such a move. In response, the Spanish regulator has said the situation is unprecedented since companies had hitherto used proxy securities called American Depositary Receipts to access US investors. It acknowledged that “certain adjustments” may be required for a Spanish firm to list shares in the US. There’s no such uncertainty surrounding the Amsterdam regime.
The Spanish government is understandably livid. A headquarters is where important decisions are made. It’s not just that bosses may have second thoughts about cutting investment in their backyard. The corporate center is a direct source of high-value jobs, and feeds ancillary businesses in professional services, in turn underpinning a city’s attractiveness to other large firms.
Lose a headquarters and this cluster effect suffers. Unfortunately, Madrid has reinforced the impression it’s not on the side of big business by reportedly exploring whether it can forcibly block Ferrovial’s exit. Carrots would be better than sticks.
Ferrovial isn’t blameless here. Its billionaire chairman, Rafael del Pino Calvo-Sotelo, should have prepared the ground more carefully. If the Netherlands move really is down to Spanish technicalities, it should be pushing to solve them. As it is, Ferrovial will struggle to combat suspicions there are other drivers — such as the Netherlands’ management-friendly governance framework, or frustration with Spanish business policy.
Companies have four seemingly distinct choices to make on location – their HQ, the tax residency, the main listing and where management live and work. They can be in different countries. But listing choice is often influenced by index considerations, and HQ location can be a factor here. When Unilever Plc wanted to simplify its odd structure comprising separate UK and Dutch companies, it had to get rid of one. An initial plan to favor the Netherlands foundered because it would have meant leaving the FTSE 100 Index. Consolidating in London has kept Unilever in both the UK and Dutch benchmarks.
You don’t need to be US-based to be in the S&P 500 — there’s a handful of non-US firms in the index — but it can be a contributing factor in helping companies qualify. So there are particular attractions to foreign companies listing in the Americas to also be based there too. Shell reportedly mulled moving both listing and HQ to the US when it was simplifying its Anglo-Dutch structure. The current listing battles may be just the beginning of a bigger fight for the residency of multinationals.
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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Chris Hughes is a Bloomberg Opinion columnist covering deals. Previously, he worked for Reuters Breakingviews, the Financial Times and the Independent newspaper.
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