Thesis: Analysis of the Efficiency and the Future of the Foreign Cross-Listing

SPECIALIZED MASTER

In Corporate Finance

Professional thesis subject:

Analysis of the Efficiency and the Future of the Foreign Cross-Listing

Societe Generale Corporate & Investment Banking

(Contact : vincent-chertier.mas(c) em-lyon.com)

Promotion 2008

Date: 17^th December 2008

Professor supervisor: Associate Professor in Finance Mr Loïc Belze

Copyright E.M.LYON

Par accord du CFC

Cession et reproduction interdite

Summarv

Introduction............................................................................................... 3

I. Theoretical Approach of the Foreign Cross-Listing ......................................... 5

Preamble .......................................................................................... 5

Different Methods of Foreign Cross-Listing ............... 6

I.2.a. Depositary Receipts (DRs) ............................... 6

I.2.b. Dual-Listed Companies (DLCs) 7

I.2.c. Other Means .............................................................................. 16

Reasons Pleading for Foreign Cross-Listing .......................................... 16 I.3.a. Business Motivations ................................................................... 16 I.3.b. Corporate Governance Motivations ................................................ 17 I.3.c. Financial Motivations ................................................................... 20 I.3.d. Main Impacts of the Foreign Cross-Listing ...................................... 25

Different Geographical Origins Imply Different Purposes ........................ 27

II. Geography of the Foreign Cross-Listing ................................................... 28

Methodology for the Creation of the Sample ....................................... 28 II.1.a. Sources .................................................................................... 28 II.1.b. Statements and Assumptions Regarding the Analysis ...................... 30

Presentation of the Results ............................................................... 31

Empirical Interpretation of the Results ............................................... 33 II.3.a. Geographic Distribution .............................................................. 33 II.3.b. Sector ...................................................................................... 36 II.3.c. Size and Growth ........................................................................ 38 II.3.d. Cultural Similarities ................................................................... 41

Going Further in the Empirical Interpretation ......... 42

III. Environment and Current Evolutions ...................................................... 43

III.1. Decreasing Advantages and Increasing Concerns ? 43

III.2. A Major Tendency Has Emerged .......................... 45

III.3. A New Deal in the Stock Exchanges Industry 49

III.3.a. Mergers between Stock Exchanges 49

III.3.b. Strategic Partnerships between Stock Exchanges 50

III.3.c. New Actors Are Arriving... 50

IV. Is the Foreign Cross-Listing Efficient ?.................................................... 52

Empirical Determination of the Efficiency 52

Liquidity Analysis 56

Volumes Analysis 60

IV.3.a. Analysis of the Efficiency 60

IV.3.b. Current Tendency: the "Fading Listing" 64

Future of the Foreign Cross-Listing 69

ArcelorMittal Case Study 71

V. Conclusion ........................................................................................... 75

Bibliography............................................................................................ 78

OtherSources 79

Appendix1 80

Appendix2: Articles 81

Introduction

In 2001, the Kenyan based company East African Breweries Ltd, initially listed on the Nairobi Stock Exchange, performed a foreign cross-listing on the Uganda Securities Exchange and, the year after, re-performed this operation on the Tanzanian Dar-es-Salaam Stock Exchange in Tanzania. This atypical example materializes how the company's decision to be cross-listed on a foreign stock exchange depends on a set of motivations or events inherent to each company. Over the decades, the phenomenon related to foreign cross-listing has known various tendencies, illustrated by a set of highs and lows. This phenomenon started in the 70s and reached its highs during the 1980s-1990s. However, since the beginning of the new millennium new cross-listings have become scarcer, but above all the number has been steadily diminishing. This growing loss of interest in foreign cross-listing mainly results from regulatory framework evolutions, materialized by the Sarbanes-Oxley Act (2002) and the amendment of the Markets in Financial Instruments Directive (2007) which paved the way to the harmonisation of regulatory regime for investment services.

Up to now, many researches have already dealt with the phenomenon of foreignlisting and foreign cross-listing, but few have developed the notion of efficiency of such operations. In this perspective, this research bases its findings on a sample of 1,347 foreign cross-listing cases and tries to answer to the following problematic:

Within the current context of financial markets, is the foreign cross-listing an efficient tool for companies ?

Nevertheless, on account of the existence of intangible benefits like the visibility, the prestige and the recognition, there is no Manichean answer. However, through the analysis of a set of elements, it is possible to outline the current tendencies and therefore to predict the likely future of foreign cross-listing.

In the first place, this research focuses on the theoretical analysis of the foreign cross-listing, describing the advantages and drawbacks for a company. The goal is to understand the motivations and the patterns leading to perform such operations.

Then, the second part develops a statistical analysis of the foreign cross-listing
phenomenon and its geographical distribution, with a focus on Western European,
North American, Japanese and Australian stock exchanges. Through the analysis

of the collected data, the purpose is the identification of the main characteristics of cross-listed companies. This step is essential because it serves of foundation of the part dealing with the efficiency analysis.

In the third place, this research tackles the theme related to the on-going revolution in the stock exchanges industry. This research tries to outline the impacts and the implications on foreign cross-listing.

Finally, this research combines the statements made in the previous parts and the outputs given by the efficiency test. Hence, the interpretation of the results helps to draw the conclusion and the future of foreign cross-listing.

I. Theoretical Approach of the Foreign Cross-Listing

I.1. Preamble

Definition of the foreign cross-listing:

In this research, a company is considered as foreign cross-listed, if and only if its own shares are officially listed on one or several foreign stock exchanges, in addition to the stock exchange of its incorporation country.

By the term officially listed, we consider cross-listing initiated on the behalf of the company.

Nowadays, foreign cross-listing may complete the hierarchy of financing sources, the Pecking Order Theory developed by S. Myers and N. Majluf in 1984.

#1: Successive Process of Global Financing^l

Domestic Capital
Market Operations

International
Bond Issue

Foreign Equity
Issue

Foreign Equity
Listing

1

R. Nyvltova, 2006, "The Effects of Cross-Border Listings on the Development of Emerging Markets: the Case of Czech Republic⁰

Holders

Stock Exchange

Barcllys ADR 1::

NYSE

AXA
ADR 1:1 11

Tel 'talia
ADR ¹:¹0110

Sanof I ADR 2:1

Depositary Receipts System

Trust

arcla Barclays

tock
Stock

Tel Italie
tock
Stock

Sanof I

tock Stock

AXA
toc Stock

Bank

I.2. Different Methods of Foreign Cross-Listing

In addition to the simple and direct listing through shares, the financial engineering for corporate finance has developed complementary ways to perform a foreign cross-listing.

I.2.a. Depositary Receipts (DRs)

Depositary receipts (DRs) are an indirect mean to list foreign shares. DRs are tradable certificates issued by a "sponsoring bank" (or "depositary bank"), representing the ownership of stocks in the capital of a foreign company and compliant with the local financial markets laws. This product replicates an underlying stock of a company, which is in fact held by a trust vehicle in a foreign bank. A DR may represent a fraction of a stock, a single stock, or several stocks. For instance, foreign companies aiming at a listing in the United States or the United Kingdom may respectively use "American Depositary Receipts" or "Global Depositary Receipts". In a lesser extent, there are also "European Depositary Receipts", "International Depositary Receipts" in Brussels, "Dutch Depositary Receipts" in Amsterdam, "Swedish Depositary Receipts", "Singapore Depositary Receipts" and so on.

The sponsoring bank provides all the services regarding the registration, the agency services, the broker trading, the conversion of dividends into the DR holder's currency, and so on. As a consequence of the utilisation of a trust vehicle, DR holders are not considered as shareholders of the company and do not have voting rights; but they may instruct the DR depositary bank how to vote the stocks underlying their DRs.

There are four types of DR (I, II, III, unsponsored), each one corresponding to different classes. A sponsored level I DR trades over-the-counter (OTC) and implies the minimal requirements for companies (e.g. neither obligation to publish quarterly/annual reports nor to meet the U.S. GAAP). Level II DR (no capital is issued), is different from level III DR (new capital is issued), but both have the highest disclosure and fulfilling requirements. At these two levels, companies with DRs listed in the United States must annually fill forms (registration statements and financial statements) for the American S.E.C. and fully meet U.S. GAAP.

Most of time, DRs are issued according to the will of a company to be listed on a specific market with the aim to become accessible to new investors and thus to attract additional pool of capital. However, a bank may also issue unsponsored DRs, that is to say not realized on the behalf of the company but of an investor. Nowadays, there are no formal requirements to seek companies' authorisation to issue unsponsored DRs, since such operation is completely passive, i.e. presents no risks, no future implications, no costs for the company.

Today DR is the most used method for a listing abroad, in particular in the United States and in the United Kingdom. According to the Bank of New York, issues of DRs exceed US$50.0bn in 2007 vs. US$44.5bn in 2006, which had already set a record high². Most of DRs issued in 2007 had been realized on the Nyse, Nasdaq, Nyse Alternext (former Amex) and L.S.E; with two third of issuers originating from the BRIC countries (Brazil, Russia, India, China).

I.2.b. Dual-Listed Companies (DLCs)

A dual-listing (DL), also referred as Siamese twin, is the result of a merger between companies incorporated in different countries. These two companies agree to unify their forces (cash flows, operational activities), but to keep separated their identities (assets, shareholdings). In this case, there are contractual agreements between the two companies to share the cash flows from each other's assets. Alternatively, the two companies may transfer all their assets to a holding company which redistributes the dividends. The shareholders of the two companies have the same rights in terms of votes and dividends, "in line with

2

These figures include IPOs and capital increases, but no issues from mergers and acquisitions

the relative 'weights' of the two companies established at the time of the creation of the DLC"³.

Under this type of organisation, there is a unique management or an identical management elected on both board.

DLC Structure Type 1 (case of Rio Tinto Ltd and Rio Tinto Plc)

Shareholders of the Dutch Entity

Assets (operations)

Rio Tinto Ltd listed on Sydney

Dividends

Voting rights

Cash
flows

Shareholders of the English Entity

Dividends

Assets (operations)

Rio tinto Plc Listed on the L.S.E

Voting rights

DLC Structure Type 2 (case of Unilever N.V. and Unilever Plc)

Shareholders of the Dutch Entity

Holding Company

Dividends

Unilever N.V listed on Amsterdam

Dividends Dividends

Voting rights

Cash flows Operations

Assets

Shareholders of the English Entity

Dividends

Unilever Plc Listed on the L.S.E

Voting rights

³ Reserve Bank of Australia Bulletin, 2002, "Dual-listed Companies"

First of all, it is important to notice that a dual-listing is different from a cross- listing, since the shares on each stock exchange are not from the same company. Whereas a dual-listing implies the quasi-merger of two companies, a cross-listing results into the secondary listing on a foreign stock exchange. However, the overall philosophy is the same and that is why during the creation of the sample in part II. The Geography of the Foreign Cross-Listing, dual-listings will be considered as cross-listings. However, in the part dealing with the liquidity and the volumes matters (see IV. Is the Foreign Cross-Listing Efficient ?), DLCs are not taken into consideration since their shares are different and therefore not tradable on the both stock exchanges (e.g. impossibility to perform arbitrages, i.e. buy a stocks on the ASX and sell it on the L.S.E).

At the moment, two of the most relevant cases of dual-listing are BHP Billiton Plc/BHP Billiton Ltd (U.K., listed on L.S.E/Australia, listed on ASX) and Unilever Plc/Unilever N.V (U.K., listed on L.S.E/The Netherlands, listed on Euronext Amsterdam).

All actual dual-listed companies (as of December 2008):

4 ThomsonReuters (Canada/U.K., 2008)

4 Mondi (South Africa/U.K., 2007)

4 Anheuser-Busch InBev (Belgium/Brazil, 2004)

4 Carnival Corporation (U.K./U.S., 2003)

4 Investec Bank (South Africa/U.K., 2002)

4 BHP Billiton (Australia/U.K., 2001)

4 Rio Tinto (Australia/U.K., 1995)

4 Reed Elsevier (U.K./The Netherlands, 1993)

4 Unilever (U.K./The Netherlands, 1930)

Former dual-listed companies (as of December, 2008):

4 Royal Dutch Shell (U.K./The Netherlands, 1907-2005)

4 Brambles Industries (Australia/U.K., 2001-2006)

4 Fortis (Belgium/The Netherlands, 1990-2001)

4 Allied Zurich (now ZFS) (U.K./Switzerland, 1998-2000)

4 Dexia (Belgium/France, 1996-2000)

4 Nordbanken/Merita (now Nordea) (Sweden/Finland, 1997-2000)

4 ABB Group (Sweden/Switzerland, 1988-1999)

4 Smith Kline Beecham (now Glaxo) (U.K./U.S., 1989-1996)

According to the managements of former DLCs, the main reasons evoked to justify the withdrawal of the DLC structure is the willingness to eliminate the premium/discount between the two companies, although there is theoretically no possibility of arbitrage since the two companies offer equivalent dividend and voting right to their respective shareholders. However, some examples had shown significant gap between the two stocks values.

Several studies have already been done about this subject (L. Rosenthal and C. Young⁴ in 1990, K. Froot and E. Dabora⁵ in 1999), showing that "significant mispricing in three DLCs (Royal Dutch Shell, Unilever, and Smithkline Beecham) has existed over a long period of time. Both studies conclude that fundamental factors (such as currency risk, governance structures, legal contracts, liquidity, and taxation) are not sufficient to explain the magnitude of the price deviations". K. Froot and E. Dabora⁵ stated that "the relative prices of the twin stocks are correlated with the stock indices of the markets on which each of the twins has its main listing. For example, if the FTSE 100 rises relative to the AEX index (the Dutch stock market index) the stock price of Reed International PLC generally tends to rise relative to the stock price of Elsevier NV. A potential explanation is that local market sentiment affects the relative prices of the shares of the DLC parent companies".

4

L. Rosenthal and C. Young, 1990, "The seemingly anomalous price behavior of Royal Dutch/Shell and Unilever N.V./PLC"

⁵ K. Froot and E. Dabora, 1999, "How are stock prices affected by the location of trade?"

#2: Evolutions of the stocks Rio Tinto Pic (London) and
Rio Tinto Ltd (Sydney)

Both shares price in £, by using the dai ly currency conversion rate A$/£

70

60

50

40

30

20

10

0

80

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Sydney London

Source: ThomsonReuters Datastream, from the 07/10/1998 to the 07/10/2008

#3: Premium / Discount (Rio Tinto Pic vs. Rio Tinto Ltd)

20%

Premium / Discount

min (29/09/2008) -29.88%

max (31/03/2000) 15.31%

average -3.65%

Gross tendance FTSE vs. ASX

15%

10%

5%

0%

-5%

-10%

-15%

-20%

-25%

30

10

-10

-30

-50

-70

-90

-110

-130

-150

1998 199922000 2001 2002 2003 2004 2005 2006 2007 2008

% Premium / % Discount (LHS) Variations FTSE vs. ASX (RHS)

Source: ThomsonReuters Datastream, from the 07/10/1998 to the 07/10/2008 Premium / discount calculated by using the daily currency conversion rate A$/£

#4: Evolutions of the stocks Royal Dutch N. V (Amsterdam) and
Shell Plc (London)

40 Both shares price in €, by us ing the daily currency conversion rate £/€

35

30

25

20

15

10

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Royal Dutch N.V Shell Plc

Source: ThomsonReuters Datastream, from the 19/07/1995 to the 19/07/2005, i.e. date of the complete unification of the two companies and the creation of Royal Dutch Shell

#5: Premium / Discount (Shell Plc vs. Royal Dutch N. V)

-10%

-15%

-20%

-25%

10%

-5%

5%

0%

Gross tendance FTSE vs. AEX

Premium / Discount

min (03/02/1999) -20.48%

max (27/02/2003) 6.74%

average -5.62%

20

0

-20

-40

-60

-80

-100

-120

-140

-160

1995 1996 1998 1999 2001 2002 2003 2005

% Premium / % Discount (LHS) Variations FTSE vs. AEX (RHS)

Source: ThomsonReuters Datastream, from the 19/07/1995 to the 19/07/2005 Premium / discount calculated by using the daily currency conversion rate £/€

Both shares price in €, by us ing the daily currency conversion rate £/€

#6: Evolutions of the stocks Unilever N. V (Amsterdam) and
Unilever Plc (London)

26 24 22 20 18 16 14 12

10

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Unilever N.V Unilever Plc

Source: ThomsonReuters Datastream, from the 07/10/1998 to the 07/10/2008

#7: Premium / Discount (Unilever Plc vs. Unilever N.V)

- 25%

- 10%

- 15%

- 20%

10%

-5%

5%

0%

Gross tendance FTSE vs. AEX

Premium / Discount

min (03/02/1999) -29.54% max (27/02/2003) 5.85%
average -4.60%

20

0

- 10

- 20

- 30

- 40

- 50

10

1998 2000 2001 2002 2004 2005 2007 2008

% Premium / % Discount (LHS) Variations FTSE vs. AEX (RHS)

Source: ThomsonReuters Datastream, from the 07/10/1998 to the 07/10/2008 Premium / discount calculated by using the daily currency conversion rate £/€

Note: In order to offset the forex variation between two stocks listed in different currencies, we have used the day-after-day spot conversion rate.

The analysis of the three exhibits #3, #5, #7 entitled "Premium / Discount" and representing the cases Royal Dutch Shell, Rio Tinto and Unilever, confirms the statement made by K. Froot and E. Dabora (see quotation page 10). During a substantial period of time (several months or years), the premium/discount evolution of the DLC evolves in the same way as the difference of variation between the two stock exchanges of quotation. The more a stock exchange outperforms the second one, the more the premium for the stock listed on the first one increases (or the discount decreases).

The most striking case concerns Rio Tinto. During an 8-years period of time (1998-2008), the premium of the stock listed on the L.S.E reached a maximum of circa 15% and progressively decreased to become a discount of circa 23% on July 2008. This decrease was quite progressive and regular over the time. These graphs illustrate the correlation between the premium/discount and the difference of evolution between the two stock exchanges. Over the 10-years period, the correlation between the two variables is quite strong and reaches the value of 0.82.

#8: 10-Years Evolution of Rio Tinto Pic Daily Free-Fioat Rotation (London)

550

2.0%

500

450

1.6%

400

350

200

150

100

0.4%

50

0

0.0%

1.2%

300

250

10Y free-float rotation = 0.79

0.8%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Monthly average daily volumes (LHS) % of the free-float (RHS)

Source: ThomsonReuters Datastream

#9: 10-Years Evolution of Rio Tinto Ltd Daily Free-Float Rotation (Sydney)

160

2.0%

0.0%

80

140

1.6%

120

100

1.2%

10Y free-float rotation = 0.76

60

40

0.8%

0.4%

20

0

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Monthly average daily volumes (LHS) % of the free-float (RHS)

Source: ThomsonReuters Datastream

As we may notice after the analysis of the two exhibits #8 and #9, the 10-year daily free-float rotations are almost the same (0.79 vs. 0.76) and follow the same tendency over the time. Hence, we may reject the hypothesis that the difference of liquidity between the two stocks could have an influence on the premium/discount variation.

Since 2002, we may notice the relative narrowing of the gap between the two stocks, consequence of more efficient financial markets, a growing deregulation and the fall of barriers between countries.

Through the analysis of former DLCs, we may note that since the year 2000 a majority of DLCs have disappeared. In each case, the reasons pleading for the total unification of the DLC were a greater liquidity thanks to a unique stock traded and the increase of weight in benchmark index. Moreover, companies' managements have to take into consideration that owning a control stake in the capital of one of the two companies provides the control of the whole DLC.

After this simplification of structure, the two listings become a simple cross-listing.

I.2.c. Other Means

Instead of performing foreign cross-listings, companies may decide to list locally one of their foreign subsidiaries. In 1997, Yahoo! made such decision by listing Yahoo! Japan Corp on the Japanese market JASDAQ. Another example was the Royal Dutch Shell and its subsidiary Shell Canada (founded by Shell in 1911 and listed on the Toronto Stock Exchange until 2007).

However, this kind of operation is not considered as cross-listings and will not be analyzed in this research.

I.3. Reasons Pleading for Foreign Cross-Listing

"[Dual listing] is an innovative concept that ratchet's up the debate regarding the quality of the trading environment for securities - and what is best for shareholders."

Jeffrey Sonnenfeld, Associate Dean, Yale School of Management

Cross-listing's rationales may be depicted into three main motivations: business, corporate governance and financial. Generally, the decision to initiate a foreign cross-listing results from a combination of these three types of motivation.

I.3.a. Business Motivations

In a study surveying European managers about the benefits of foreign listing⁶, managers were used to pointing out the visibility and the notoriety as the main gains. While the visibility facilitates relations with clients and suppliers, the notoriety helps the recognition of a brand in foreign market.

Moreover, in some cases the question of prestige regarding the listing place may be taken into consideration. Indeed for some companies, being listed in financial centers like New York or London has become a mean to distinguish themselves from their competitors. Such notion had also been confirmed by the study of F. Bancel and C. Mittoo⁶.

⁶ F. Bancel and C. Mittoo, 2001, "European Managerial Perceptions of the Net Benefits of Foreign Stock Listings"

I.3.b. Corporate Governance Motivations

Regarding corporate governance matters, there are several reasons pleading in favor of foreign cross-listing.

Firstly, one of the most evoked elements by managers is the gain in recognition, since both media and financial analyst coverage increase after a foreign cross- listing. The more a stock is covered by analysts, the more it draws the attention from the market and investors.

Secondly, a foreign cross-listing may be useful for companies based in countries providing low domestic regulatory standards. By being listed in a major financial place and by adopting higher accounting/governance standards, the company sends positive signals to the market by providing more reliable and more qualitative information to investors.

Thirdly, the management may be attracted to broaden, to diversify and to internationalize the company shareholder basis. A foreign cross-listing allows the company to access to a greater range of institutional and individual investors. Nowadays, international markets remain in a certain way relatively segmented, domestic investors keeping a strong motivation (legal, fiscal and cultural) to invest in domestic stocks. This is notably the case in the United States where some pension funds, one of the most important types of investors, have limitations for their foreign investments (e.g. can only hold dollar denominated instruments or have a threshold for foreign stocks corresponding to a percentage of their total assets) and thus have a limited access to international markets. By being directly listed on the local American stock exchanges, foreign companies may get round this problem.

Moreover, in 1987 R. Merton⁷ explained that investors are usually inclined to invest in companies they know, that is to say in domestic shares.

Fourthly, there is a matter of quality investor's right. Indeed, for investors one of
the most fundamental determinants is the protection of their rights, evidence

⁷ R. Merton, 1987, "A Simple Model of Capital Market Equilibrium with Incomplete Information"

showed by W. Reese and M. Weinbach⁸. Furthermore, R. La Porta, F. Lopez de Silanes, A. Shleifer and R. Vishny^{(9 and 10)} arrived at the conclusion that "the legal system is the primary determinant for external financing in a country" and "the common-law system provides better quality protection for investors than civil-law systems". Nowadays, the common law system is widespread in countries with British heritage like the United Kingdom, the United States, South Africa, Canada, Australia and so on.

Fifthly, foreign cross-listing may also be a mean to facilitate merger and acquisition operations (M&A) with foreign companies, notably by providing the possibility to pay the target by the mean of share exchange. Such evidence had been pointed out by P. Tolmunen and S. Torstila¹¹, through the study of "196 European firms cross-listed in the U.S. showing that cross-listed firms are significantly more active than matching pair firms in U.S. acquisitions. Cross-listed firms are also somewhat more likely to use equity payment, particularly in the year of cross-listing. The act of cross-listing, however, does not in itself increase the likelihood of U.S. acquisitions for any given company: rather, cross-listed firms are likely acquirers both after and before the cross-listing. After cross- listing, however, the proportion of aggregate M&A volume financed with equity increases, as cross-listed shares are used to finance large acquisitions".

After an important M&A operation with shares exchange, the buyer often asks for the admission of its shares on the target's main listing places. The goal is to remain close to the target's main clients, suppliers, investors, banks and authorities. This point is more public relationships than pure financial preoccupations.

Furthermore, foreign cross-listings consecutive to M&A operations allow to comply with an element thereby called in this research "national sensibility" or simply "economic patriotism". Sometimes, it appears to be unthinkable and politically inconceivable that a national champion completely disappears after being acquired by a foreign company. For the buyer, becoming cross-listed on the stock exchange of the target's incorporation country allows to maintain a part of the target's identity and may facilitate the transaction with local investors and authorities.

⁸ W. Reese and M. Weinbach, 1999, "Protection of Minority Shareholder Interests, Cross-listing in the United States, and Subsequent Equity Offerings"

⁹ R. La Porta, F. Lopez-de-Silanes, A. Shleifer and R. Vishny, 1998, "Law and Finance, Journal of Political Economy"

¹⁰ R. La Porta, F. Lopez-de-Silanes, A. Shleifer and R. Vishny, 1997, "Legal Determinants of External Finance"

11

P. Tolmunen and S. Torstila, 2002, "Cross-Listings and M&A Activity: Transatlantic Evidence"

There are different cases of M&A operations:

4 Hostile takeover: e.g. in 2006 Mittal Steel and its successful takeover bid on Arcelor. The new group ArcelorMittal had been admitted for listing on Euronext Paris, Euronext Brussels, BME Madrid and Bourse de Luxembourg, in addition to Mittal's listing places Euronext Amsterdam and the Nyse (further details are given in part IV.5. ArcelorMittal's Case Study).

4 Merger: e.g. in 2007 Unibail-Rodamco which had been created by the merger between the French Unibail and the Dutch Rodamco. Since, the new created company Unibail-Rodamco is cross-listed in both countries and is a constituent of the two national reference indexes (CAC 40 and AEX).

4 Merger through a dual-listing: InBev, one of the world leading brewers resulting from the combination (2004) of the Belgian InterBrew and the Brazilian Ambev. As a result, InBev is now listed on Euronext Brussels, whereas Ambev remains listed on the Brazilian Bovespa. In 2008, InBev launched a successful bid on the biggest American brewer Anheuser-Busch, and will consider a new listing in Anheuser-Busch's home country, i.e. the Nyse.

4 Spin-off: in 2008, Suez Environnement has been cross-listed on Euronext Paris and on Euronext Brussels, i.e. the two main listing places of its mother company, GDF-Suez.

Finally, we may consider that two different types of foreign cross-listings may occur:

4 Active cross-listing, where the foreign cross-listing operation results from the management's decision.

4 Passive cross-listing, where the foreign cross-listing operation results from a M&A operation.

I.3.c. Financial Motivations

Nowadays, the growing globalisation and accessibility to financial markets all around the world make the geography less and less relevant: restrictions for international capital movements disappear, trading costs decrease, stocks exchanges merge or enter into alliances, and so on. The purpose of a foreign cross-listing may be the presence in a wider, more efficient and more innovative financial market than its incorporation country one. We may give the example of Russian and Indian companies which are listed in their domestic financial place, but also often in London or in New York.

Influences on the shares

First of all, a foreign cross-listing increases the trading volumes and therefore improves the overall liquidity. In efficient markets, greater liquidity should be translated into lower cost of capital, since liquidity is valued by investors. Y. Amihud and H. Mendelson¹² stated that "the theory of corporate finance has been based on the idea that a company's market value is determined mainly by just two variables: the company's expected after-tax operating cash flows or earnings, and the risk associated with producing them." The two authors also argued that "there is another important factor affecting a company's value: the liquidity of its own securities, debt as well as equity". For instance, since 2008 more and more companies initially listed on the Londoner fast growing market AIM (Alternative Investment Market) have initiated cross-listings on Euronext Alternext in order to offset the lack of liquidity on their primary stock exchange and to benefit from a second European market in the Eurozone, the world's second main currency. This was the goal of IPOs of British companies Proventec and Accsys: "European investors are not comfortable dealing in the AIM market. There aren't many market makers handling our shares, there aren't many market makers handling most AIM shares 11.3 we do not want to knock AIM but want to provide better liquidity for our European investors", Proventec's CEO said¹³.

12

Y. Amihud and H. Mendelson, 2008, "Liquidity, the Value of the Firm, and Corporate Finance", Journal Applied Corporate Finance

¹³ See Appendix 2: Article by Jon Mainwaring, The Independent published on Sunday, 10 February 2008, "AIM companies bid for dual listings on Euronext to boost liquidity"

Then, the reduction of transaction costs should also improve the volumes and the liquidity, by encouraging investors to perform more buy/sell operations. However, in his study¹⁴ published in 2001, J. Hamet highlighted that cross-listings may affect the equilibrium of the markets. Indeed, Hamet's rationale suggests that trades in each listing place may risk to become more limited, not facilitating the pricing discovery process.

Moreover, in part I.3.b. Corporate Governance Motivations, we have already dealt with the influence of the shareholding diversification for the corporate governance. However, according to R. Merton, it is also possible to establish the positive impact of the shareholder basis widening on the stock price. R. Merton¹⁵ stated "when the shareholder base broadens, risks' sharing improves, bringing about a positive impact on stock prices. [..] Smaller shareholder base is associated with lower firm value".

Finally, we may imagine that a foreign cross-listing in markets having different time zones may reduce the volatility of the stock. In this perspective, P. Lowengrub and M. Melvin¹⁶ arrived at the conclusion that pricing errors are reduced because "it facilitates the process of assessing a stock's value at the beginning of the trading session. At the opening of the trading, prices are less volatile for shares that traded overnight on another exchange than for those that did not".

Influences on the cost of capital

Through a foreign cross-listing, there are different ways to influence a company's financing.

Firstly, we may consider a positive influence on the cost of capital thanks to a better access to capital markets. Indeed, empirical studies¹⁷ showed that the cost of equity generally declines after a foreign cross-listing. This decline may be explained by the access to easier and more competitive financing conditions

¹⁴ J. Hamet, 2001, "La cotation des titres d'une entreprise française sur un marché étranger et ses conséquences pour l'actionnaire", PUF

¹⁵ R. Merton, 1987, "A simple Model of Capital Market Equilibrium with Incomplete Information", Journal of Finance 72, No.3

¹⁶ P. Lowengrub and M. Melvin, 2006, "Before and After International Cross-Listings: An Intraday Examination of Volume and Volatility"

17

A. Karolyi, 1998; R. Stulz, 1999; V. Errunza and D. Miller, 2000

(loans, issuance of shares, equity-linked or bonds instruments), but also by the elements previously given in part I.3.b Corporate Governance Motivations, i.e. a decrease of transaction costs for investors, a higher reliability and quality of information provided to investors, as well as a better investor protection. For instance, a higher reliability and quality of information may reduce the investor's cost for researching information and the risk related to a company, therefore allowing the company to obtain lower cost of funding, R. Stulz¹⁸.

Secondly, the increase of the company's geographical customer basis helps to lower the company's beta _R (see Appendix 1) which impacts downwards the cost of capital, R. Stulz¹⁸, P. Martin and H. Rey¹⁹, D. Lombardo and M. Pagano²⁰.

Influences on the valuation

As a matter of fact, it is well established that the cost of funding has an influence on the company's valuation.

In its study, L. Zingales²¹ measured the difference between market value and book value, with the conclusion that "shares of foreign companies listed both in the company's home market and on a U.S. stock market traditionally trade at a higher valuation as a percentage of book value than domestic peers that aren't cross-listed. A cross-listed company traded at 150% of book value and a similar company from the same country listed only on their home market traded at 120% of book value, the valuation premium would be 30 percentage points. [..] The premium for listing on both U.S. and foreign markets averaged 51 percentage points from 1997 to 2001. It dropped to 31 percentage points between 2002 and 2005". As a consequence, we may deduct that investors would pay more for a company listed in the United States, mainly for the reasons given previously in this research.

The influence of the corporate governance on company's valuation had already been highlighted by the work of P. Hostak, E. Karaoglu, T. Lys and Y. Yang²², who noticed that "compared to foreign firms that maintained their ADRs, foreign firms which voluntarily delisted have weaker corporate governance, had a less negative

¹⁸ R. Stulz, 1999, "Globalization of Equity Markets and the Cost of Capital"

¹⁹ P. Martin and H. Rey, 1999, "Financial Integration and Asset Returns"

²⁰ D. Lombardo and M. Pagano, 1999, "Law and Equity Markets: A Simple Model"

²¹ L. Zingales, 2006, "Is the U.S. capital market losing its competitive edge?"

22

P. Hostak,, E. Karaoglu, T. Lys and Y. Yang, 2007, "An Examination of the Impact of the SarbanesOxley Act on the Attractiveness of US Capital Markets for Foreign Firms"

stock market reaction when SOX was passed, and suffered a significant price decline in their home-markets when they announced their intention to delist."

Over the years, some financial places have managed to become the center of gravity for some sectors: Nasdaq has become a natural stock exchange for investors and funds specialized in technology-IT-biotech, whereas the places of London, Toronto and Sydney own a real expertise in Mining and Oil & Gas sectors. Such evidence has already been showed by A. Blass and Y. Yafeh²³ with the demonstration that Dutch and Israeli companies performing a listing in the United States are "young, fast growing, overwhelmingly high-tech oriented and highquality innovative".

Furthermore, not being listed in a place specialized in its sector, may contribute to a lower the liquidity, and therefore the company's stock underperformance in comparison to its sector.

Being foreign cross-listed may also help the company to gain in price-to-earnings ratio (P/E). Indeed, it is well established that the difference of the average P/E between stock exchanges (see exhibit #10) may offer substantial gap, and therefore lead to important difference in market capitalisation for companies evolving in the same sector.

#10: Historical Average P/E of the World Main Stock Exchanges
(Period 2000-2007)²⁴

61.8 59.8

31.9

24.1 22.6 21.1 20.9 20.2 19.2 17.9 16.7 16.4 14.9 14.1 13.2

²³ A. Blass and Y. Yafeh, 1999, "Vagabond Shoes Longing to Stray: Why Foreign Firms List in the United States"

24

Sources: World Federation of Exchanges, Bloomberg, ThomsonReuters Datastream

As we can see in the exhibit #10, there are major differences of valuation between stock exchanges. For instance, the Nasdaq offers a 7-years average P/E of 59.8 whereas the Nyse and Euronext Paris offer respectively 20.2 and 14.9. By taking advantage of this mispricing (low domestic P/E in comparison to foreign P/E), a company may initiate a foreign cross-listing on a stock exchange where its peers benefit from relative higher P/E.

#11: 2007 P/E Comparison of Foreign Companies Foreign Cross-Listed
on American Stock Exchanges

Origin Country	Average P/E of Foreign		Average P/E on the Primary Premium/
Companies on the Nyse	Stock Exchange Discount		Latin America
13.1x	9.9x
					India
11.7x	9.7x		20%		China Hong Kong
11.9x	8.4x		41%		Shanghai
19.2x	13.3x		44%		Canada
15.5x	11.2x		39%		U.K
10.4x	7.7x		34%		Western Europe
12.1x	10.6x		14%		Japan
11.7x	12.5x		(7%)	South Korea
7.4x	8.4x (12%)

Average P/E of Foreign Companies on the Nasdaq		Average NewTech's P/E on the Tel Aviv SE			Premium/ Discount

Israel* 15.1x 13.8x 9%

P/Es are calculated with 2007 net incomes and market capitalisations as of the 06/11/2008

* Regarding Israeli companies, we compared those cross-listed on the Nasdaq, due to their large presence on this stock exchange

Sources: ThomsonReuters Datastream, Bloomberg

The exhibit #11 corroborates the statement previously enounced concerning the
companies originating from MEDC²⁵ but also from emerging countries. However,
two notable exceptions exist with the cases of Japanese and South Korean

²⁵ More Economically Developed Countries (Western and Northern Europe, Canada, the United States, Japan, South Korea, Australia and New Zealand)

companies, consequence of the 1990s stagflation impact and overvalued companies in comparison to their results.

By analyzing the premium/discount, it emerges that a foreign cross-listing on the Nyse allows companies to gain on average 23% in P/E; figure which is quite significant because it concerns companies with market capitalisation in billion U.S. Dollars.

Other influences

Through a foreign cross-listing and the exercise of stock-options, a company may dispose of a new mean to pay its employees in foreign subsidiaries. This solution is more convenient, may be done at a lower cost and enables the association of foreign employees in the capital.

I.3.d. Main Impacts of the Foreign Cross-Listing

As we noticed, foreign cross-listing may theoretically have many impacts, all resumed by the following diagram #12. In fine, the goal of a foreign cross-listing is to influence the company's valuation for the benefit of shareholders.

All connections and impacts (see next page, exhibit #12)

Corporate
Governance

Other minor rationales:

n M&A purposes

n National sensibility / economic patriotism

n Different trading time zones

Business

Financial

I.4. Different Geographical Origins Imply Different Purposes

After the analysis of the reasons pleading for foreign cross-listing, companies may be depicted into two main classes, each one differentiated by its purposes.

The first class is mostly made up of companies originating from the MEDC countries. These companies generally decide to perform one or several foreign cross-listings in another MEDC country for business and/or financial motivations, but also sometimes to comply with reasons of "national sensibility" (further details in part I.3.b. Corporate Governance Motivations, sub part M&A operations).

As regards the second class of cross-listed companies, we may consider companies originating from the emerging countries, mostly from the BRIC (Brazil, Russia, India and China), but also to a lesser extent from Mexico, Turkey, South Korea, Taiwan, Indonesia and South America. The main purposes are more oriented towards corporate governance matters (accounting standards, investor's rights protection, better media/analyst coverage, visibility to clients and suppliers), but also towards the access to easier and more competitive financing conditions.

Conversely to the tendency in the MEDC countries, foreign cross-listings still have an interest for companies from emerging countries. Up to now, there is still a large number of foreign cross-listings with issuers from emerging countries, consequence of not sufficiently developed local financial markets and low domestic regulatory standards.

II. Geography of the Foreign Cross-Listing

II. 1. Methodology for the Creation of the Sample

II.1.a. Sources

Different sources had been used and cross-checked for the creation of the sample, therefore allowing us to develop our foreign cross-listing analysis.

This analysis focus on 15 stock exchanges (4 North American, 11 Western European, 1 Japanese, 1 Australian) located in 15 developed countries, and representing 85.31% of the world total trading value as of July 2008 YTD²⁶, i.e. US$49,856,092 million²⁷.

#13: Map of the Stock Exchanges Selected for the Analysis

²⁶ YTD means Year-to-date, as of July 2008

27

Calculated with data from the World Federation of Exchanges

#14: Stock Exchanges Share of Worldwide Volumes July 2008 YTD

	Share inTotal	Western	Share inTotal		Share inTotal
Americas	Trading Value	Europe	Trading Value	Asia-Oceania	Trading Value
Nyse	35.16%	L.S.E	7.81%	Tokyo SE	6.04%
Nasdaq	14.69%	Deutsche Bôrse	4.36%	ASX	1.49%
Nyse Alternext	0.66%	Euronext	5.10%
TSX	1.90%	Paris
		Amsterdam
		Brussels
		SWX	1.76%
		OMX	1.56%
		Borsa Italiana	1.88%
		BME	2.89%

Source: World Federation of Exchanges

In a first step, we used stock exchanges' websites in order to get the complete lists of all foreign companies listed on each places.

4 Nyse (New York Stock Exchange)

4 Nasdaq

4 Nyse Alternext, former Amex (American Stock Exchange)

4 TSX and TSX Venture (Toronto Stock Exchange)

4 Euronext-Alternext Paris, Amsterdam, Brussels

4 L.S.E-AIM

4 Deutsche Biirse

4 SWX/VTX (Swiss Stock Exchange)

4 OMX Nordic Exchange (Stockholm, Copenhagen and Helsinki)

4 Borsa Italiana

4 BME (Bolsas y Mercados Espafioles)

4 ASX (Australian Stock Exchange)

4 TSE (Tokyo Stock Exchange)

After a precise analysis and cross-check with several tools like Bloomberg and ThomsonReuters Datastream, we had arrived to a final sample composed of 1,347 foreign cross-listing cases.

However it is important to notice that the figure 1,347 includes cases where a company owns multiple foreign cross-listings. The company ArcelorMittal is one of these cases with listings on Euronext Paris, Euronext Brussels, Euronext Amsterdam, Bourse du Luxembourg, BME Madrid and on the Nyse.

Afterwards, as regards of the analysis of data such as the performances, the volumes, the sales or the net incomes, the sample had been reduced to companies providing daily trading information with tools like Bloomberg and ThomsonReuters Datastream.

II.1.b. Statements and Assumptions Regarding the Analysis

In this analysis,

4 If a company is listed on different stock exchanges belonging to the same country, e.g. Nyse/Nasdaq or Frankfurt/Xetra, we had only considered it once.

4 If a company owns on the same stock exchange different kinds of financial instruments (e.g. class A and class B shares, different kinds of ADR, shares and ADR), we had only considered it once. For instance, this was the case of the Japanese companies Torray Industries and Fujitsu listed on the L.S.E.

4 In the sample, we consider DLCs (Dual-Listed Companies).

4 As regards listings in Germany (Frankfurt and XETRA), the quasi totality of listed companies in the world are proposed to the trading by the operator Deutsche Biirse, i.e. a total of 11,355 German and foreign companies. However, in this research we had only considered companies having initiated by themselves foreign cross-listings in Germany.

The following cases had been excluded from the sample,

4 ETF (Exchange-Traded Funds) or index trackers, e.g. Lyxor ETFs, iShares, PowerShares, and so on

4 Companies which are not listed in their (or at least one of their) incorporation country(ies)

4 OTC (Over-the-Counter) traded shares

4 Non-sponsored Depositary Receipts (DRs)

Stock Exchange

TSX 34 2173 12 1 2

SWX 60 4 16 2 12 20 6 251 7 1 7 135 6 141 392 36,0%

OMX 3 3 1 676 7 0 7 682 1,0%

BME 1 1 1 1 151 1 5 29 34 192 17,7%

Borsa Italiana 1 6 17 12 1 1 3 286 41 1 42 328 12,8%

Tokyo SE 8 1 1 3 2 1 1 1 2271 18 2 20 2295 0,9%

ASX 8 10 2024 18 15 33 2056 1,6%

Nyse 2869

Nasdaq 2895

Nyse Alternext Amex) 759

Euronext Amsterdam 2 2 142 4 7 2 9 1 2 29 6 35 196 17,9%

Euronext Brussels 4 187 6 1 11 8 19 237 8,0%

Euronext Paris 15 8

Deutsche Börse 3 1 2 1 5 1307 3 2 1 2 2 1 23 7 30 1336 2,2%

L.S.E 31

Origin

Sc

U.S Canada NL Belgium France Germany U.K Swiss Spain Italy Japan Australia

andinav_ia

36

42

76

62

4 3 3 5 1 3 7 10 72 61 133 3200 4,2%

6 1 9 9 26 5 4 5 5 19 5 170 148 318 3620 8,8%

7 3 9 1810 5 4 17

9

673 3 11 1 0 2 1 50 15 65 756 8,6%

2 1 65 2 67 862 7,8%

36

26

Total from
MEDC
Countries

154 156 310 2333 13,3%

75 18 93 2369 3,9%

Total from
Emerging
Countries

Total
Cross-
Listings

# of local
companie
s listed

% of foreign cross- listings

3,5%

2,4% 3,9%

10 55 79 873 474 1347

1,1% 6,3% 9,0% 100%

11.2. Presentation of the Results

Total Listings	166	224	55	17	66	61	89	11	25		15	Degree of cross-listing
2,6%	10,3%	38,7%	9,1%	9,8%	4,7%	4,9%	4,4%	3,7%	9,9%		Weight / total
19,0%	25,7%	6,3%	1,9%	7,6%	7,0%	10,2%	1,3%	2,9%	1,7%

#15: Geographic Distribution of Foreign Cross-Listings from the MEDC Countries²⁸

#16: Geographic Distribution of Foreign Cross-Listings from non-MEDC Countries

Origin

Stock Exchange

Nyse Nasdaq

Nyse Alternext (Amex)

TSX

Euronext Amsterdam Euronext Brussels

Euronext Paris

Deutsche Börse

L.S.E SWX OMX BME Borsa Italiana

Tokyo SE

ASX

Total Listings

Lux.

Greece	Ireland	Austria	Lichtens Portugal tein	Russia	Turkey	Eastern Europe	China	India	South Korea	Taiwan	Pakistan	Indonesi a	Singap.	New Zealand	Africa / Middle East	Israel	South Am.	1
3	4		1		5	1	1	20	10	8	5		2		1	6	3	77	1
	3								1	1	1			1		5	42	6
								1									1
								4							2	9		3	4
									2										4
																1	3		5
																9		1
	4				3														2
5	1		1		24	9	12	7	22	13	9	3	1	1		42	4		1
		1		2												2
																		29	1
										1			1
														1	12	2			19
8	12	1	2	2	32	10	13	32	35	23	15	3	4	3	15	76	53	116

II.3. Empirical Interpretation of the Results

II.3.a. Geographic Distribution

This study focuses on companies which are foreign cross-listed on the main world financial places located in 15 countries: the United States, Canada, Australia, Japan, The United Kingdom, France, Germany, the Netherlands, Belgium, Switzerland, Northern Europe (Sweden, Finland and Denmark), Italy and Spain.

This analysis records a total of 1,347 foreign cross-listing cases. Among these 1,347 foreign cross-listings, 873 (64.8%) come from the main MEDC²⁸ countries, whereas the rest comes from Eastern Europe, Russia, Turkey, China, India, Taiwan, South Korea, Pakistan, Indonesia, Singapore, New Zealand, Israel, South America and Africa.

As we could anticipate, the most attractive places are the American stock exchanges (Nyse, Nyse Alternext and Nasdaq), the L.S.E and to a lesser extent the Swiss Stock Exchange, with respectively 518, 310 and 141 cross-listings of foreign companies. This supremacy is probably linked to the strong degree of internationalisation of these stock exchanges (see following exhibit #17), the predominant influence of three of the strongest currency in the world (US Dollar, British Pound and Swiss Franc), but also the weight in the world financial system of Wall Street, the City and the Swiss banking industry.

#17: Weight of Foreign Companies on Each Main Stock Exchange²⁹

21.7%

19.6% 18.2% 17.6%

12.1% 11.5%

7.0%

4.1% 3.1% 2.0% 1.8% 1.1% 1.0%

24.4%

Source: World Federation of Exchanges

²⁸ More Economically Developed Countries (Germany, France, U.K, Switzerland, Italy, Spain, Netherlands, Belgium, Scandinavia, Canada, the United States, Japan and Australia)

²⁹ Excluding investment funds and Calculated in terms of number of companies

The exhibit #18 provides a global overview of the interest in foreign cross-listin by local companies.

#18: Number of National Companies Cross-Listed Abroad

Total Cross- Listings Abroad Degree of cross-listing^43 Total Cross- Listings Abroad Degree of cross-listing^43	U.S	Canada	France	Japan	Australia		Worldwide	Spain		Italy
	224			79 3.9% Belgium	Swiss	873 4.7% Scandinavia
	10.3%
	U.K
	89 4.9%	66	55	17	11 4.4%	25	15	10 3.5%
			38.7%	9.1%			9.9%

The Canada and the United States present both the greater number of cross- listings abroad, with respectively 224 and 166 cases, that is to say 25.7% and 19.0% of the total sample. However, after a more precise analysis of the degree of cross-listings³¹, it appears that Canadian companies are much more favorable for foreign cross-listings, since 10.3% of companies listed on the TSX and TSX Venture have another listing abroad vs. only 2.6% for American ones. In the past, Canadian companies have been historically cross-listed in the United States, whereas the reverse is not completely true: 77.7% of Canadian foreign cross- listings are performed in the United States vs. only 20.5% for American companies in Canada. Worldwide, the degree of cross-listing represents 4.7% of all national listings.

According to the results, it emerges that companies from the Euro Zone³² are the most eager to perform foreign cross-listings (Euro Zone average at 8.2%), even if result are relatively disparate (from 3.5% up to 38.7%). The other countries reach a maximum of 4.9% (one notable exception, Canada which is at the same level as France and Spain, i.e. circa 10%). Moreover, the Euro Zone companies appear more likely to perform a second listing inside the Euro Zone (77.2% of cases),

³⁰ Number of cross-listings performed by national companies / Number of national companies listed

31 # of cross-listings abroad performed by national companies / Total # of national companies listed on the national stock exchange

³² The Netherlands, France, Spain, Belgium, Germany and Italy

whereas at the European Union scale the figure decreases to 64.2%. This result is not surprising since we may point up the beginning of a unified European market materialized by a unique currency, a common top authority (the European Commission) and the total abolition of borders.

#19: Distribution of French Cross-listed Companies

Peugeot Saint Gobain

Frankfurt

Eurotunnel

EADS Lagardère Sanofi

Saint Gobain Total

Tokyo

Alcatel-Lucent

Nyse

BNP Paribas

*****

Societe Generale *

***

Swiss

Alcatel-Lucent GDF Suez

Axa Sanofi

BNP Paribas Scor

Danone Saint Gobain

France Telecom Total

LVMH Vivendi

Spain

Brussels

~ ~~ ~ ~ ~

Milan

EADS

Alcatel-Lucent
Axa
CGG Veritas
France Telecom
Sanofi (ADR)
STMicroelectronics
Total
Thomson
Veolia (ADR)

Alcatel-Lucent

GDF Suez Peugeot

Saint Gobain

Total Vranken-Pommery

Nasdaq

* Dassault Systemes
** Ilog
*** Wavecom

Alcatel-Lucent LVMH

AXA PPR

BNP Paribas Renault

Carrefour Sanofi

Crédit Agricole Societe Generale Danone STMicroelectronics
France Telecom Vivendi

GDF suez Total

L'Oréal

Amsterdam

Alcatel-Lucent Saint Gobain

Air France-KLM STMicroelectronics EADS Unibail-Rodamco
Gemalto

Luxembourg GDF Suez

London

Sources: Companies

* The delisting of Dassault Systemes from the Nasdaq in 2008 is in progress

** In 2008,the American IBM launched a takeover on Ilog

*** In December 2008, the Canadian Sierra Wireless launched a takeover on Wavecom

**** Societe Generale has announced its delisting from Tokyo for the end of 2008 ***** BNP Paribas has announced its delisting from Tokyo during the year 2009

II.3.b. Sector

A closer look at the exhibits #15 and #16 highlights the correlation between the foreign cross-listings and the dynamism of cross-border mergers/acquisitions at the European scale (e.g. connections between France/Italia, France/Netherlands, U.K./Netherlands and Germany/Switzerland).

As noticed in part I.3.c Financial Motivations, the findings also verify the attractiveness of specialized financial places for some sectors. The case of the Toronto Stock Exchange (TSX) is particularly eloquent (see exhibit #20); among all the foreign cross-listings on the TSX, 87% are performed by companies operating in the Mining or Oil & Gas sectors. The analysis of the typical Canadian company listed on the TSX shows that more Mining and Oil & Gas companies are listed on the TSX than on any other financial place in the world (Mining and Oil & Gas represent 402 of the 612 Canadian companies listed on the TSX). This result is the consequence of the major influences of these sectors within the Canadian economy.

#20: Weight of Companies Operating in
he Mining and Oit & Gas sectors in the TSX

	Canadian Companies on the TSX		Foreign Cross-Listings on the TSX	Mining
267	87		Oil & Gas
135	12		Sum
402	99		% of all Canadian companies on the TSX
66%
			% of cross-listed companies on the TSX
	87%

This tendency may also be verified with the technology-IT-biotech companies foreign cross-listed on the Nasdaq, with 77% of Australian cross-listed companies operating in the Pharmaceutical or Biotechnology sector.

Another example: among the 41 Israeli cross-listed companies on the Nasdaq, 40 are operating in the Pharmaceutical, Biotech or IT sectors. In comparison, there are only 3 Israeli foreign cross-listings on the Nyse and 4 on the L.S.E.

Moreover, we may notice that a major player within a sector has an influence on the foreign cross-listings of its peers by attracting them in its primary listing place. The rationale for such operation is the following: when a financial place and its local investors are familiar with a sector thanks to the presence of a local important player, it may be natural for competitors to approach these same investors and therefore to raise capital.

For instance, the analysis of British companies foreign cross-listed on Euronext Paris shows that these companies own an important subsidiary operating in the French market or have a French important competitor. Among the 11 British companies cross-listed on Euronext Paris

4 HSBC owns the former French bank CCF since 2005

4 Kesa owns Darty, the second largest business unit of the group (after Comet)

4 Kingfisher owns Castorama, the second largest French retailer of home improvement tools and supply

4 Diageo is the main competitor of Pernod-Ricard, the world's second largest player in the beverage sector

4 BP is one of the main competitors of the French major Total

4 Hammerson and Segro are competitors of world biggest real estate company, the French-Dutch Unibail-Rodamco

As regards the 42 foreign companies cross-listed in Italy

4 AXA, Allianz, Aegon, Fortis, ING are competitors of the 3^rd European insurer, Generali

4 Total is one of the main European competitors of the major Eni

4 BNP Paribas and Credit Agricole are foreign cross-listed in Italy since their important acquisition of Italian banks, respectively BNL and
Ca riparma/FruilAdria

4 LVMH and PPR made important Italian acquisitions such as Fendi, Gucci, Bottega Veneta

II.3.c. Size and Growth

As anticipated in part 111.1. Decreasing Advantages and Increasing Concerns ?, a focus on companies' size shows that foreign cross-listings are in the very great majority performed by large companies, with 76.4% of the sample presenting a market capitalisation greater than US$1bn (as of October 2008). The main reason behind this tendency is the cost related to a foreign listing which is a financial border between small and large companies.

According to the results, foreign cross-listed companies present on average sales of US$31.2bn and a market capitalisation of US$26.8bn.

#21: Average Sales and Market Capitalisation of
Companies Composing the Sample

Total Sales (mUS$)			Market Cap. (mUS$)

Average 31238 26793

Median 9640 8274

Source: ThomsonReuters Datastream

#22: Breakdown of the Sample by Market Capitalisation

5.3%

9.9%

8.5%

6.6%

3.9%

9.1%

13.5%

14.4%

28.8%

76.4%

More than $100bn
Between $75bn - $100bn
Between $50bn - $75bn
Between $20bn - $50bn
Between $10bn - $20bn
Between $1bn - $10bn
Between $500m - $1 bn
Between $100m - $500m
below $100m

Source: ThomsonReuters Datastream

#23: Average Sales and Market Capitalisations by Stock Exchange (in mUS$)

Nyse

Nasdaq

Toronto

Sales Mkt Cap Sales Mkt Cap Sales Mkt Cap

28522 27819 6516 3263 194 420

Milan

Swiss

Frankfurt

Paris

Sales Mkt Cap Sales Mkt Cap Sales Mkt Cap Sales Mkt Cap

63801 54269 57650 45209 44832 52508 42048 39410

BME

London

OMX

Sales Mkt Cap Sales Mkt Cap Sales Mkt Cap

25928 18203 22425 19514 16992 22125

Tokyo

Australia

Sales Mkt Cap Sales Mkt Cap

58493 63088 3618 4157
Source: ThomsonReuters Datastream

After a more detailed look at the data, it emerges major differences of company profile between stock exchanges.

First of all, the analysis of the average size brings to light that places like Paris, Frankfurt, Milan, Zurich or Tokyo mainly attract very large multinationals (i.e. most of these companies belong to their national reference index), whereas London and New York have a broader scope by attracting more medium-sized companies as well as emerging countries companies. This point is reinforced by the analysis of the dot distribution in the four point clouds in exhibits #24.

Furthermore, it is worth to notice the major difference of size and sales between the two main American stock exchanges, since foreign cross-listed companies on the Nasdaq are on average far away smaller than those on the Nyse. This may be explained by the different roles played by each stock exchange: the Nyse is mainly targeted by multinational companies, well established and operating in traditional activities, whereas the Nasdaq welcomes more fast growing companies (see exhibit #25).

#24: Correlation between Net Incomes 2007 and Market Capitalisations (mUS$)

Net Incomes 07 Net Incomes 07

R² = 0.7612

Market Cap.

0 50000 100000 150000 200000 250000 300000

Nyse

Net Incomes 07

0 50000 100000 150000 200000 250000 300000

Europe*

Net Incomes 07

0 50000 100000 150000 200000 250000 300000

L.S.E

0 50000 100000 150000 200000 250000 300000

Nasdaq

30000

25000

30000

R² = 0.7475

Market Cap.

25000

20000

15000

10000

5000

0

R² = 0.9052

Market Cap.

30000

25000

20000

15000

10000

5000

0

30000

25000

20000

15000

10000

R² = 0.464

Market Cap.

5000

0

20000

15000

10000

5000

0

Source: ThomsonReuters Datastream R² is the correlation in linear regression

Most striking, is the strong correlation between the net incomes 2007 and market capitalisations for companies foreign cross-listed on the L.S.E, on the Nyse and in Europe, with respectively R² of 0.91, 0.76 and 0.75. A contrario, foreign crosslisted companies on the Nasdaq generally offer a weak correlation with R² dropping to 0.46. This confirms the presence on the latter of smaller and fast-growing companies.

However, there is no proven correlation between the Price Earnings Ratio (P/E) and the sales growth CAGR (Compound Annual Growth Rate) for the period 2004- 2007 (see appendix 1).

* Europe includes main European markets for Foreign cross-listing, i.e. France, Germany, Switzerland and Italy

#25: Sales Growth CAGR during the period 2004-2007

Euro Zone U.K Canada U.S

Origin Place

Foreign Listing Place

Japan Emerging

Countries

			Average					Nyse
+9.3%	+6.3%	+24.4%	-	+10.5%	+30.8%		Nasdaq
+19.7%	+10.8%	+33.9%		-+1.9%	+14.6%		L.S.E
+10.9%	-	+38.7%	+7.1%	+7.1%	+17.7%		Euronext Paris
+4.6%	+9.1%	n.a	+8.3%	n.a	+33.0%

n.a: no enough data available Source: ThomsonReuters Datastream

Note:

As regards Canadian foreign cross-listed companies, the figures mostly concerns companies operating in the sector of Mining and Oil & Gas; that explains the impressive double digit sales growth over the last few years.

II.3.d. Cultural Similarities

The overall results bring to light the strong influence of cultural similarities in the choice of the cross-listing place. Indeed, companies performing foreign cross- listings are particularly inclined to list in countries culturally similar to their origin country. We may note the influence of elements such as a common language, a common culture, a common history, and so on. Such statement has already been evoked by the work of M. Pagano, A. Rbell and J. Zechner³⁴, and a precise look at the results of the exhibits #15 and #16 in part 11.2. Presentation of the Results corroborates such idea.

First of all, a striking figure is the weight of foreign cross-listings performed between Anglo-Saxons³⁵, which represents 35.6% of all 1,347 foreign cross- listings. Another example is the attractiveness of Euronext Paris for Belgian companies; Euronext Paris gathering 53% of all the 17 Belgian foreign cross- listings. On the other side, French and Luxembourgian companies represent 62%

³⁴ M. Pagano, A. Rdell, and J. Zechner, 1999, "The Geography of Equity Listing: Why Do European Companies List Abroad?"

³⁵ United States, Canada, United Kingdom, Ireland, Australia, New Zealand and South Africa

of all foreign cross-listings on Euronext Brussels. Although many Latin American companies (77 over 116, i.e. 66.4%) chose an American stock exchange as secondary listing place, many (25%) also chose the Spanish stock exchange BME.

The notion of common history has also to be taken into consideration. The most convincing examples are the foreign cross-listings of companies from emerging countries. For instance, Euronext Paris has managed to attract companies originating from the former French Colonial Empire (three Moroccan and one Gabonese companies), while the L.S.E has numerous companies from the former- British Empire (22 Indian companies, 12 South African, 7 Egyptian, 3 Zimbabwean, 2 Nigerian, 1 Kenyan, 1 Jordanian and 6 from the UAE).

One of the most relevant examples is the case of the insurance company Old Mutual with shares listed in London, Johannesburg, Malawi, Namibia and Zimbabwe. Originally founded in South Africa with subsidiaries in the whole south part of Africa, the group is henceforth based in London.

Beyond any geographical reasons, the culture appears to be important in the choice of the second listing place. It may be explained by the fact that American investors should have more ease to understand English companies than French ones in terms of corporate governance, accounting data, and so on. Moreover, the American and the Canadian markets, as well as the Australian and the New Zealander ones, are very linked.

In addition to cultural similarities, the exhibits #15 and #16 illustrate the strong economical relations between countries. In this perspective, Japanese, Israeli, Chinese and Canadian companies tend to cross-list in the United States instead of in Europe; European companies tend to foreign cross-list inside Europe; African companies in Europe; New Zealander companies in Australia.

11.4. Going Further in the Empirical 1nterpretation

Ideally, it would have been interesting to have historical data for the number and geographical distribution of foreign cross-listings, in order to analyze the trends over a long period of time and to notice which countries have gain in attractiveness and vice versa.

The present data are only a "photograph" at a specific moment of the foreign cross-listing phenomenon.

III. Environment and Current Evolutions

III.1. Decreasing Advantages and Increasing Concerns ?

During the 1980s-1990s, but also to a lesser extent during the 1970s, foreign cross-listing had been an important phenomenon, helped by the internationalisation of companies and the liberalisation of financial markets. Such operations had been performed by numerous of companies with the objective to access to the main financial places. This was particularly the cases of many major French and European companies, which had increasingly listed abroad, and more especially in the United States.

First of all, the main impediment regarding a foreign cross-listing results from its cost. We may point up two types of cost: direct and indirect. Direct costs correspond to expenses that prepare the listing operation (mainly listing charges and fees for advisors), whereas indirect costs include commitments for the company to abide by the local laws.

Nowadays, most of costs regarding a foreign cross-listing stem from the obligation to comply with the different accounting norms (e.g. US GAAP, IFRS). For instance, the costs of keeping an ADR compliant with the S.E.0 regulation have become increasingly annoying and demotivating, even for the biggest European companies. This non-negligible element may thus become a "financial border" between small and large companies, these last ones being the only ones that could afford such expenses.

In part II.3.c. Size and Growth, we tried to verify and to confirm this element by analyzing the main characteristics of foreign cross-listed companies (e.g. market capitalisation, sales, presence in main national/international index, and so on).

Secondly, one of the main reasons for a foreign cross-delisting is the low level of daily traded shares. This point may be illustrated by the decision of Air France-KLM in January 2008 to apply for a complete cross-delisting of its ordinary shares and ADRs from the Nyse. Reasons given by Air France-KLM's management regarding this decision are the following:

"The rationale for delisting and deregistration is principally based on the fact that
Air France-KLM is primarily listed on Euronext Paris, which is now part of NYSE-

Euronext, where the average trading volume accounted for more than 95% of trading over the last twelve months, making the additional costs and expenses associated with dual registration not cost-justified. Air France-KLM remains committed to developing its contacts with American investors, who represent an important part of the Group's shareholding structure." ³⁶

Thirdly, there are also risks of regulation modification in the countries where the company is cross-listed. One of the most relevant examples is the enactment (2002) of the Public Company Accounting Reform and Investor Protection Act (also known as the Sarbanes-Oxley Act or SOX) which has initiated the withdrawal from the quotation in the United States of numerous European companies. These companies were discouraged by the new penalizing rules and had to perform a double accounting (US GAAP and IFRS norms) which is quite consuming in financial and in human resources.

Moreover, it is important to notice that the Sarbanes-Oxley Act has introduced a new juridical risk for the companies' managements which may lead to a 20-years jail sentence. P. Hostak, E. Karaoglu, T. Lys and Y. Yang³⁷ noticed that "the passage of the Sarbanes-Oxley Act (SOX) coincided with an increase in voluntary delistings of foreign firms traded as American Depository Receipts (ADRs) from US stock exchanges. [...] these delistings were motivated by firms' costs of complying with SOX or by managers' or controlling shareholders' (MCOs) loss of control rents that resulted from corporate governance mandates of SOX."

In addition, we may consider legal risks related to regulators and to class actions from shareholders in countries where the company is cross-listed. This was the case of Siemens in 2008 which because of its listing on the Nyse had to paid a $800m fine to settle a probe by U.S. Justice Department following the offense of the Foreign Corrupt Practices Act about corruption, but also EADS, Societe Generale and Vivendi which had been suited by class actions in the United States. Translation from French: "In the case of an ADR [...] the question has to be considered for companies organizing presentations for potential investors in the United States; a particular precaution is important concerning earnings forecasts which may lead to posterior appeals if the company is unable to reach its guidance and if the stock falls significantly. In order to reduce European companies' commitments in terms of financial information, a harmonisation between American

³⁶ Source: Air France-KLM, the 18th January 2008

³⁷ P. Hostak,, E. Karaoglu, T. Lys and Y. Yang, 2007, "An Examination of the Impact of the SarbanesOxley Act on the Attractiveness of US Capital Markets for Foreign Firms"

(US GAAP) and international (IFRS) norms appears to be the best solution in midterm."³⁸

Finally, it is also worth to notice that being cross-listed in different countries considerably complicates procedures related to mergers and acquisitions.

Obviously, foreign cross-listing provides undeniable benefits, but in some cases these benefits may appear to be weak regarding the drawbacks previously listed. This point could be verified by surveying managers about the costs and benefits of foreign cross-listing. In this perspective, F. Bancel and C. Mittoo performed a survey in 2001 and came to the conclusion that despite "a majority of managers (60%) perceive that benefits outweigh the costs of foreign listing, about 30% also view the net benefits to be negative. Perceived net benefits are positively related to the increase in the total trading volume after foreign listing, the financial disclosure levels of the firm, and the dual listing on both the US and European foreign exchanges. Without the influence of these factors, the perceived net benefits are negative"³⁹. However, it is essential to pay attention to the study's date of publication: 2001. Since this publication, we have now to take into consideration that financial markets have evolved and some conclusions, true in 2001, may have become no more topical. However, this study still gives us a good overview of what feelings managers have for foreign cross-listings.

111.2. A Major Tendency Has Emerged

Conversely to the globalisation of the financial markets, the last few years have seen emerging an important wave of foreign cross-delistings. Over the years, benefits of maintaining a foreign quotation have declined, so much so that foreign cross-listings have sometimes begun to appear as a constraint. Nowadays, foreign cross-delistings seem particularly to concern European companies cross-listed in the United States, consequence of the American financial markets loss of attractiveness but also the appearance of more demanding requirements in terms of communication, accounting publications and legal requirements. As we previously noticed in part 111.1. Decreasing Advantages and Increasing Concerns ?, all these commitments generate important costs and may lead to the withdrawal

³⁸ See Appendix 2: Article Agefi 28/05/2008, "Les procédures judiciaires américaines visent aussi les sociétés cotées à Paris"

³⁹ F. Bancel and C. Mittoo, June 2001, "European Financial Management"

from the United States with annual savings estimated to €7m per year. Considering the cost of a delisting from the United States (est. of €3m) or France (est. of €2m), a cross-delisting is rapidly amortized. By this way, companies accept to take the risk to become less visible for analysts, investors, clients and suppliers.

Moreover, institutional investors are now used to buying and to selling directly their shares on the most liquid place, which is most of time the company's market place of incorporation. This point is analyzed in part IV.3.b. Current Tendency: the "Fading Listing".

Nowadays, a cross-delisting mainly results from the following events:

4 M&A operations (e.g. acquisition/takeover)

4 Management's decision (e.g. liquidity/cost/efficiencies issues)

4 Radiation of shares by authorities

#26: Cases of Recent Cross-Delistings

Company	Country	Dates	Delisting from Company			Country	Dates		Delisting from
									Volvo
Sweden	2001	Tokyo SE	Akzo Nobel	Netherlands		2007	Nasdaq
	2003	Euronext Brussels	Telenor	Norway		2007	Nasdaq
	2003	Frankfurt	Arcadis N.V.	Netherlands		2007	Nasdaq
	2004	L.S.E	Scor	France		2007	Nyse
	2007	Nasdaq	Swisscom	Switzerland		2007	Nyse		LVMH
France	2002	Nasdaq Adecco	Switzerland			2007	Nyse
	2003	Euronext Brussels	BG Group Plc		U.K	2007	Nyse		Nokia
Finland	2003	L.S.E	Bayer	Germany		2007	Nyse
	2004	Euronext Paris				2008	Tokyo SE
	2007	OMX Stockholm	Boeing	U.S		2008	Tokyo SE		Lafarge
France	2004	L.S.E Ducati Motor	Italy			2008	Nyse
	2004	Frankfurt	Societe Generale		France	2008	Tokyo SE
	2007	Nyse Dassault Syst.	France			2008	Nasdaq		Bombardier
Canada	2004	Euronext Brussels	Altria Group	U.S		2008	Euronext Paris
	2005	Frankfurt	Telefonica	Spain		2008	Euronext Paris		ABB
Switzerland	2005	L.S.E				2008	Frankfurt
	2005	Frankfurt	BP Plc		U.K	2008	Nyse Arca & Chicago		Euro Disney
France	2005	L.S.E				2008	Toronto SX
	2005	Euronext Brussels				2008	Tokyo SE		K Line
Japan	2005	Euronext Brussels				2009	Swiss SX
	2005	Frankfurt Boeing	U.S			2008	Tokyo SE		Vivendi
France	2006	Nyse	Bosch	Germany		2008	Tokyo SE		Pioneer
Japan	2006	Nyse Barclays Plc	U.K			2008	Tokyo SE
	2006	Euronext Amsterdam	KPN		Netherlands	2008	Nyse
	2006	Osaka SE				2008	L.S.E		Ahold
Netherlands	2007	Nyse				2008	Frankfurt		BASF
Germany	2007	Nyse Ericsson	Sweden			2008	L.S.E		Fiat
Italy	2007	Nyse	AnheuserBush*	U.S		2008	L.S.E		E.ON
Germany	2007	Nyse Alcatel-Lucent	France			2008	Tokyo SE		Technip
France	2007	Nyse	ING Groep	Netherlands		2009	Euronext Paris		Danone
France	2007	Nyse				2009	Frankfurt		British Airways
U.K	2007	Nyse				2009	Zurich		Suez
France	2007	Nyse BNP Paribas	France			2009	Tokyo SE

* Anheuser-Busch has announced its willingness to delist from the L.S.E on April 2008, whereas the takeover bid by InBev has been announced in July 2008

Here are some cross-delisting reasons given by companies' managements:

Lafarge, delisting from the L.S.E and Frankfurt (2004) and from the Nyse (2007)⁴⁰:

4 Lafarge notes recent changes, in particular the merger of the New York Stock Exchange and Euronext.

4 Lafarge is listed on Euronext, where the average trading volume has accounted for close to 99 % of trading in its securities.

4 Lafarge trading volumes on the L.S.E, Frankfurt and Nyse through ADR, has remained at a low threshold since 2002, accounting respectively for around 1.4%, 0.2% and 1% of total traded shares.

Ahold, delisting from the Nyse (2007)³⁰:

4 Improve cost-effectiveness by reducing complexity.

4 The majority of Ahold shares held by U.S.-domiciled investors are acquired through Euronext Amsterdam.

4 The average daily trading volume in the United States over the last twelve months has been less than five percent of the total worldwide volume.

Societe Generale, delisting from the Tokyo Stock Exchange (end-2008)³⁰:

4 Weakness of volumes traded.

4 The impact for Japanese investors will be limited since they are used to buyin Societe Generale shares on Euronext Paris.

ING, delisting from Euronext Paris, Frankfurt and Zurich (2009)³⁰:

4 The low volume of shares traded on the aforementioned exchanges. In the twelve months up to 1 November 2008, trading on the Frankfurt, Paris and Swiss exchanges amounted to a combined 0.3% of the total daily trading volume in ING shares. This share of volume has steadily been diminishing over the last years.

4 Technological and regulatory developments now give investors ample opportunity to trade shares on exchanges outside their country of residence. This reason for having a broad range of listings is now no longer relevant.

4 Maintaining a listing brings costs with it. Concentrating trading on a limited number of exchanges aligns with ING's ongoing focus on cost efficiency.

After analysis of the exhibit #26, it is essential to notice that the cross-delisting
phenomenon impacts all main stock exchanges in the MEDC countries. This

⁴⁰ Source: Companies, see announcements on company's website

phenomenon is verified at the European Union scale, at the European scale, at the European-American scale, at the Japanese-European-American scale.

For few years, one of the most striking tendencies is the withdrawal of European companies from American stock exchanges; tendency which has been spectacularly increasing these last years and reached its paroxysm in 2007. According to a study⁴¹ of the Committee on Capital Markets Regulation (CCMR), "from 1997 to 2006, the foreign delisting rate from the NYSE averaged 5.3%. When in 2007 the rate spiked to 15.1% (representing delistings by 68 foreign companies)". The CCMR has analyzed the "nationality and market valuations of the delisting companies and found that delisting companies were overwhelmingly from Western Europe. Of the 53 companies that delisted not due to an acquisition, 43 were from Western Europe (8 each from the UK and France and 7 from Germany) and 4 were from Australia. Only 5 of the 53 delisting companies were from emerging market countries Chile (1), Brazil (1), Hong Kong/China (2) and Israel

(¹)."

Furthermore, we may now admit that this tendency is not linked to the market downturn resulting from the Subprimes Crisis (which began in July 2007 and reached its highs in September 2008 with the Lehman Brothers' fall), since numerous of cross-delistings were performed during the bullish period 2006- Mid2007. Afterwards, most of cross-delisted companies continue to be present in the United States capital markets through an over-the-counter listing (OTC).

"Some years ago Akzo Nobel was a front runner in the process of simplifying its European listings on stock exchanges. With today's global capital markets functioning well, and in light of changed U.S. legislation regarding delisting, we now want to finalize this process, which will result in a single listing in Amsterdam. With a simplified structure in place we expect to generate cost savings of around EUR 7 million per annum", R. Frohn, Akzo Nobel's CFO said⁴².

Furthermore, another striking materialisation of this phenomenon is the decrease of foreign listings on the Tokyo Stock Exchange (TSE). Between 1991 and 1998, foreign cross-listings had tumbled from 127 to 25, consequence of falling volumes since Japan's asset bubble burst in early 1990s, but also of the international capital markets deregulation which has made easier for investors to trade shares outside their home exchange.

41

Committee on Capital Markets Regulation (CCMR, http://www.capmktsreg.org), 2007, "Non-U.S. Company Delisting from Nyse soared in 2007"

42

Source company

III.3. A New Deal in the Stock Exchanges Industry

III.3.a. Mergers between Stock Exchanges

Few years ago began an important movement of concentration between stock exchanges operators, giving birth to leaders with activities in several countries or continents. The most representative example was the merger between the American Nyse and the European Euronext, forming the world leading stock exchange in terms of market capitalisation, volumes and number of listed companies. At the same time, were performed several other major operations such as L.S.E-Borsa Italiana, Deutsche Biirse-SWX and NASDAQ-OMX.

One of the main purposes of these operations was to create ?a truly global marketplace with great breadth of product and geographic reach that will benefit all investors, issuers, and our shareholders and stakeholders"⁴³. As the competition between stock exchanges has steadily increased, mergers allow to reduce costs, to optimize resources and to boost client numbers. For instance, rapidly after the merger L.S.E-Borsa Italiana which saw the English operator taking the control of the Italian one, 360 of the main Italian stocks joined the L.S.E's trading platform TradElect, therefore creating the biggest pool of liquidity in Europe.

And which could be the next step ? By going further in this perspective, why not proposing to clients a 24h-continuous trading with companies listed on three market places, e.g. Tokyo Stock Exchange, Euronext Paris and Nyse ?

New moves had been performed with the purchase by Nyse of a 5% stake in the capital of the Indian National Stock Exchange (2007), but also a 20% stake in the Qatar Exchange (2009).

As a consequence of these merger and acquisition operations, the AmericanScandinavian group Nasdaq-OMX has announced it will introduce a new plan in order to simplify and to promote multiple listings on its different stock exchanges (Nasdaq, OMX Stockholm, OMX Copenhagen, OMX Helsinki, OMX Iceland, Tallinn Stock Exchange, Riga Stock Exchange, Vilnius Stock Exchange, Armenian Stock Exchange). At the same time, the group plans to launch a new platform in London with the goal to compete against the L.S.E.

⁴³ John Thain, CEO of Nyse Euronext at the moment of the declaration

III.3.b. Strategic Partnerships between Stock Exchanges

Following the concentration movement described previously, stock exchanges are also signing partnerships in order to facilitate collaborations in various domains like the trading, the listings, the services and the technology. Recently, Nyse Euronext and the Tokyo Stock Exchange have entered into "strategic alliance"⁴⁴, paving the way for an eventual merger. Nyse Euronext has also made some moves towards the Doha Securities Market and other stock exchanges in the Philippines and in Malaysia. Meanwhile, Deutsche Biirse signed agreements with the Korean Stock Exchange (2007) and the Chinese Tianjin Exchange (2007).

After two partnerships with the Nasdaq and the L.S.E during the year 2007, the Tel-Aviv Stock Exchange (TASE) signed in 2008 an equivalent partnership with Place de Paris. The main goal was to "promote foreign cross-listing which would facilitate the intervention of foreign investor on each place. Up to now, about 60 had chosen to be dual-listed on TASE and abroad"⁴⁵. By signing partnerships with the main stock exchanges, the TASE aims at attracting companies through a foreign cross-listing in Tel-Aviv. In this perspective, agreements between authorities of both countries have been signed in order to facilitate the regulation recognition of both countries.

III.3.c. New Actors Are Arriving...

Regarding the stock exchanges industry, tomorrow's key issues are represented by new alternative trading platforms (also known as "darkpools") such as Turquoise, Chi-X and Bats Trading.

Recently, thanks to the amendment of the Markets in Financial Instruments Directive (MiFID) and the developments of new technologies applied to the finance, the competition between traditional and alternative trading platforms has considerably increased. The main materialisations of this new directive are the launches of new MTFs (Multi-Trading Facilities) as a serious alternative to traditional stock exchanges such as the L.S.E, Deutsche Biirse or Euronext.

One of these MTFs is the pan-European platform Turquoise, created by 9 banks (Societe Generale, BNP Paribas, Citigroup, Goldman Sachs, Merrill Lynch, Morgan

44

Article: NYSE Group and Tokyo Stock Exchange Enter Strategic Alliance - Sign Letter of Intent for Mutual Cooperation and Development. Tokyo Stock Exchange website

45

See Appendix: Article Agefi 28/05/2008, "La Bourse de Tel-Aviv veut attirer les investisseurs français" (traduction: "The Tel-Aviv Stock Exchange wants to attract French Investors")

Stanley, Deutsche Bank, UBS and Credit Suisse) and launched in August 2008. At the time of its launch, the platform announced the goal to gather 5% of European shares volumes before the end-2008 (vs. a mid-term 12% market share) and predicted that traditional stock exchanges would pass below the 50% market share⁴⁶. Henceforth, on that platform are available 1,267 different company shares from 15 major European countries.

As regards Chi-X launched in 2007, this platform managed to reach ahead of schedule its guidance, i.e. a gathering 15% market share in volumes on the French CAC 40, on the German DAX 30 and on the Dutch AEX 25, and in the meantime 20% market share in volumes on the British FTSE 100. Now, Chi-X's management aim at expanding the activities to secondary European countries such as Spain, Ireland, Greece and several Eastern European countries like Slovakia. The contributions of these MTFs are principally the drop of trading costs, but also a greater liquidity and efficiency, essential elements for investors. Besides, according to a study of ITG Posit, "trading costs have fallen by 43% in the United Kingdom since the development of dark pools". In response to these new competitors, traditional operators are also developing alternative trading facilities. Nasdaq OMX is going to launch the Nasdaq OMX Europe, whereas the L.S.E (formerly in association with Lehman Brothers) is going to launch Baikal⁴⁷. In September 2008, Nyse Euronext launched SmartPool for European blue chips.

Fragmentation of Exchanges in Europe (as of May 2009)

	FTSE 100	DAX 30	CAC 40	AEX 25	SU 30		Average	Chi-X
18.6%	15.3%	16.5%	17.0%	6.3%	14.7%		Turquoise
5.7%	2.6%	3.4%	2.9%	2.9%	3.5%		Bats Trading
3.7%	3.6%	3.1%	2.9%	0.2%	2.7%		Traditional stock exchanges
71.8%	77.7%	76.3%	76.7%	90.7%	78.6%

Source: TAG

Concerning the foreign cross-listing, the question could be the following: what is the relevance of keeping or doing cross-listings in Europe, whereas anyhow the darkpools are proposing your shares to a large panel of investors in several countries ? And how long before the creation of alternative trading platforms at the European and North American scale, i.e. the zone which concentrates most of foreign cross-listings ?

⁴⁶ See Appendix: Article Les Echos 20/08/08. Eli Lederman - General Director of Turquoise

47

As a consequence of the Lehman Brothers fall in September 2008, L.S.E has announced continuing to develop the project

IV. Is the Foreign Cross-Listing Efficient ?

IV.1. Empirical Determination of the Efficiency

The current globalisation of financial markets implies a greater mobility of capital, an easier access to the main financing markets, the emergence of new trading facilities and a standardisation of the corporate governances.

After the analysis over the last years of the reasons given by companies announcing a foreign cross-delisting, it emerges that the notion of "efficiency" is most of time associated with "significant trading volumes".

	#27: Recent Foreign Cross-Delistings				Rationales behind the delisting (sources company)				Company
Country	Dates		Delisting from	Low trading volumes	Costs	Administrative complexity	Deregulation of capital markets
								Volvo
Sweden	2001		Tokyo SE
	2003		Euronext Brussels
	2003		Frankfurt
	2004		L.S.E
	2007		Nasdaq					LVM H
France	2002		Nasdaq
	2003		Euronext Brussels					Nokia
Finland	2003		L.S.E
	2004		Euronext Paris
	2007		OMX Stockholm					Lafarge
France	2004		L.S.E
	2004		Frankfurt
	2007		Nyse					Bombardier
Canada	2004		Euronext Brussels
	2005		Frankfurt					ABB
Switzerland	2005		L.S.E
	2005		Frankfurt					Euro Disney
France	2005		L.S.E
	2005		Euronext Brussels					K Line
Japan	2005		Euronext Brussels
	2005		Frankfurt					Vivendi
France	2006		Nyse					RSA Insurance
U.K	2006		Nyse	-	-	-	-	Pioneer
Japan	2006		Nyse
	2006		Euronext Amsterdam
	2006		Osaka SE					Ahold
Netherlands	2007		Nyse					BASF
Germany	2007		Nyse					Fiat
Italy	2007		Nyse					E.ON
Germany	2007		Nyse					Technip
France	2007		Nyse					Danone
France	2007		Nyse					British Airways
U.K	2007		Nyse					Suez
France	2007		Nyse					Akzo Nobel
Netherlands	2007		Nasdaq					Telenor
Norway	2007		Nasdaq					Arcadis N.V.
Netherlands	2007		Nasdaq					Scor
France	2007		Nyse					Swisscom
Switzerland	2007		Nyse					Adecco
Switzerland	2007		Nyse					BG Group PLC
U.K	2007		Nyse

(following, on the next page)

(following of the previous page)					Rationales behind the delisting (sources company)				Company
Country	Dates	Delisting from	Low trading volumes		Costs	Administrative complexity	Deregulation of capital markets
								Bayer
Germany	2007	Nyse
	2008	Tokyo SE						Boeing
U.S	2008	Tokyo SE						Ducati Motor
Italy	2008	Nyse						Societe Generale
France	2008	Tokyo SE						Dassault Syst.
France	2008	Nasdaq	-		-	-	-	Altria Group
U.S	2008	Euronext Paris						Telefonica
Spain	2008	Euronext Paris
	2008	Frankfurt						BP Plc
U.K	2008	Nyse Arca & Chicago	-		-	-	-
	2008	Toronto SX
	2008	Tokyo SE
	2009	Swiss SX	-		-	-	-	Boeing
U.S	2008	Tokyo SE						Bosch
Germany	2008	Tokyo SE	-		-	-	-	Barclays Plc
U.K	2008	Tokyo SE						KPN
Netherlands	2008	Nyse
	2008	L.S.E
	2008	Frankfurt						Ericsson
Sweden	2008	L.S.E						AnheuserBush*
U.S	2008	L.S.E						Alcatel-Lucent
France	2008	Tokyo SE						ING Groep
Netherlands	2009	Euronext Paris
	2009	Frankfurt
	2009	Zurich						BNP Paribas
France	2009	Tokyo SE

85.5% 51.6% 12.9% 24.2%

* delisting announcement was made on March 2008, whereas the takeover by InBev was announced in June 2008 Sources: Companies

The previous exhibit #27 underpins that in the very great majority of foreign cross-delisting cases, companies' management are used to pointing out the low trading volumes (85.5%). As regards the second most evoked rationale, the costs (51.6%) stem from the low trading volumes since the management highlight the weak relevance to pay such costs for insignificant trading volumes. Managers estimate that volumes on foreign stock exchanges no longer justify a broad range of foreign cross-listings. The findings deriving from the previous analysis allow us to determine the operational definition of the efficiency.

Operational definition of an efficient foreign cross-listing

In this research, we consider a foreign cross-listing as efficient, from the moment that the volumes and the liquidity on the foreign listing place are "significant" in comparison to those on the primary listing place.

In this research, "significant" implies a free-float rotation higher than 0.1% and volumes accounting for more than 5% of the total volumes.

However a question remains without answer. Do the notions of volume and liquidity overshadow all the advantages provided by foreign cross-listings and enounced in part 1.3. Reasons Pleading for Foreign Cross-Listing ? According to the companies' managements, the answer is in the very great majority 'yes". Undeniably, nowadays it appears that some advantages, true in the past, have become operationally negligible or no more relevant.

As regards the reduction of volatility and transaction costs that may provide a foreign cross-listing, the on-going evolution initiated by new trading platforms (see part 111.3. A New Deal in the World of Stock Exchanges 1ndustry) helps to improve all two points. Indeed, the increasing competition between traditional and alternative trading platforms improves the trading effectiveness, reduces the volatility by making shares accessible for a largest panel of investors, and lowers the transaction costs. Foreign cross-listings are not anymore the only one solution to improve these points.

Furthermore, the idea that a foreign cross-listing allows to access to new investors and to broaden shareholders basis remains true, but the contrary is not necessarily true. As we have already noticed, nothing is more mobile than the capital, which may easily and rapidly move from one financial place to another one. Hence, by taking into consideration this fact, not being cross-listed does not prevent companies from accessing foreign investors because investors are more and more mobile. Nowadays, roles have been reversed, i.e. it is not anymore the company that reaches investors, but investors that reach the company. To some extent, this situation is more convenient.

Concerning the business motivations (visibility, notoriety, relations with clients/suppliers) and the corporate governance motivations (gain in media and analyst coverage, facilitate M&A operations with foreign companies), it is quite difficult to materialize and to quantify their advantages. But we may consider that from the companies' management point of view, these elements are secondary considerations in the decision of the foreign cross-listing.

Differences Between Stock Exchanges

Since we have noted that the notions of liquidity and volumes are the most important elements in the management's decision for a foreign cross-delisting, it may be relevant to compare the liquidity by main stock exchanges.

#28: Rationales Behind the Delisting

Low trading Costs Administrative Deregulation of

volumes complexity capital markets

Cases in which the rationale is evoked	84.2% 42.1%		12.3% 21.1%	Sources: Companies

As stated B. Kadlec and J. McConnell⁴⁸, some financial markets like New York and London provide a better liquidity thanks to a greater competition between actors which implies a fall of transaction costs and an increase of the trading activity.

#29: 2007 Liquidity⁴⁹ on each Stock Exchange

0.86% 0.82% 0.76%

⁰.⁶⁵% 0.61% 0.60% 0.59%

0.52%

0.42%

0.30%

1.52%

1.06% 1.04%

0.92%

Sources: World Federation of Exchanges, ThomsonReuters Datastream

* includes the Nyse, the Nasdaq and the Nyse Alternext

** includes the Copenhagen, Helsinki, Iceland, Stockholm, Tallinn, Riga and Vilnius Stock Exchanges *** includes Euronext Paris, Euronext Amsterdam, Euronext Brussels, Euronext Lisbon

According to the exhibit #29, the Nasdaq appears to be by far the most efficient stock exchange in terms of liquidity, followed by the L.S.E and the Nyse Alternext. Regarding Borsa Italiana, it is important to mitigate its figures and its honorable 0.86% by regarding the relatively "weak" total market capitalisation of the Italian place in comparison to the Italian GDP.

⁴⁸ B. Kadlec and J. McConnell, 1994, "The Effect of Market Segmentation and Illiquidity on Asset Prices Evidence from Exchange Listings"

⁴⁹ Average Daily Turnover in US$ / Total Market Capitalisation in US$

IV.2. Liquidity Analysis

As we noticed in the previous part, companies' managements are used to considering a foreign cross-listing as a success from the moment that there are sufficient volumes and liquidity. Henceforth the notion of "efficiency" had been defined and we are going to test this point thanks to the sample we had retrieved in the chapter II. The Geography of Foreign Cross-Listings. For this reason, we are focusing the analysis on the market activity of foreign cross-listed companies, in terms of volume and liquidity on each listing place.

To materialize the notion of liquidity, we will use the free-float rotation.

Free-float rotation formula:

6-Months Average of Daily Volumes (in shares) Free-Float Rotation (FFR) = % of the Free-Float x Number of shares in the Capital

#30: Free-Float Rotation of Foreign Cross-Listings Composing the Sample

		FFR on the Primary Stock Exchange	Average
0.618%		Median
0.479%		Nyse
0.624%		Nasdaq
0.363%		Nyse Alternext
0.256%		L.S.E
0.574%		Paris
0.902%		Frankfurt
0.774%		Swiss
0.619%		Amsterdam
0.644%		Madrid
0.821%		OMX
0.626%		Milan
0.816%		Australia
0.587%		Tokyo
0.879%

FFR on the Foreign Stock Exchange			Delta* (in %)	Average
0.261%		57.8%	Median
0.042%		91.2%	Nyse
0.43053%		31.0%	Nasdaq
0.60798%		-67.4%	Nyse Alternext
0.35539%		-38.8%	L.S.E
0.06946%		87.9%	Paris
0.05549%		93.8%	Frankfurt
0.00795%		99.0%	Swiss
0.00113%		99.8%	Amsterdam
0.17350%		73.1%	Madrid
0.03515%		95.7%	OMX
A 1 1 /VICO/		0/1 A0/
		urr-.-r I..,	Milan
0.06762%		91.7%	Australia
0.14253%		75.7%	Tokyo
0.00014%		100.0%

*Delta = (FFR on the Primary Stock Exchange - FFR on the Foreign Stock Exchange) / FFR on the Primary Stock Exchange

Source: ThomsonReuters Datastream

Not relevant because not enough data

Note: in the exhibit #30, the column FFR on the Foreign Stock Exchange represents the average free-float rotation of foreign companies cross-listed on these places, whereas the other column FFR on the Primary Stock Exchange represents the free-float rotation of the same companies on their primary listing place.

Interpretation of the figures:

As we may notice, only foreign cross-listings in the United States provide significant volumes in comparison to those on the primary listing places. Most striking is the overall greater liquidity of foreign companies foreign cross-listed on the Nasdaq (delta of -67.4%), thereby becoming most of time the primary trading place. We may notice the same phenomenon on Nyse Alternext with a delta reaching -38.8%.

A contrario, the liquidity of foreign shares in Tokyo remains very poor and negligible with a delta of almost 100%. Although European countries provide better liquidity level than in Japan for foreign shares (L.S.E delta at 87.9%, OMX delta at 82.4%, Paris delta at 93.8%), it remains at weak levels in comparison to those performed on the American markets.

However, according to the results we have two intermediate cases: Amsterdam and Australia. The first one, Amsterdam, presents higher liquidity for foreign shares thanks to the strong presence of Dutch origin multi-national companies such as the Belgian-Dutch Fortis and Galapagos, the French-Dutch UnibailRodamco and AirFrance-KLM, the French-Dutch-Luxembourgian-Spanish ArcelorMittal, the Anglo-Dutch Royal Dutch Shell, Logica, Unilever and Reed Elsevier), the Swedish-Dutch LBI International, and so on.

As regards Australia, two factors have to be taken into consideration. Firstly, the large presence of Anglo-Australian companies operating in the basic resources sector. Secondly, the role hold by the Australian Stock Exchange as the most attractive place in the Oceania region, thus becoming the main trading market of numerous New Zealand companies.

#31: Free-Float Rotation of Cross-Listings in Europe

Extra-European Cross-Lisitngs: * Intra-European Cross-Lisitngs: **

FFR of non-European FFR of European

companies companies

L.S.E	0.070%		0.071%	Paris
0.019%	0.057%		Frankfurt
0.026%	0.012%		Swiss
0.001%	0.001%		Madrid
0.002%	0.035%		Milan
n.a.	0.001%		OMX
n.a.	n.a.

Source: ThomsonReuters Datastream

* Intra-European Cross-Listings: European companies performing cross-listings in Europe

** Extra-European Cross-Listings: non-European companies performing cross-listings in Europe

A more precise look at the liquidity in Europe brings to light that both intraEuropean and extra-European cross-listings provide poor liquidity, reinforcing the idea of the on-going integration of European capital markets and the fall of borders for the capital movement.

However, after analyzing a crop of important cross-border merger operations (such as SAS, Alcatel-Lucent, Carnival, Dexia, ABB, AstraZeneca, Nyse Euronext, G4S, STMicroelectonics, AirFrance-KLM, Reed Elsevier, BHP Billiton, Rio Tinto, Unibail-Rodamco, Nordea Bank, Inbev, ThomsonReuters, EADS, and so on), it emerges an average free-float rotation of 0.768%, as well as a significant delta of 59.67%. Hence, we may admit that in case of foreign cross-listings resulting from merger operations, it generally complies with our efficiency definition.

#32: Breakdowns of the Free-Float Rotations

On the Secondary Stock Exchange On the Primary Stock Exchange

2.6%

12.8%

81.8%

33.0%

33.4%

11.3%

4.3%

More than 2%
Between 1% - 2%
Between 0.5% - 1%
Between 0.1% - 0.5%
Between 0.01% - 0.1%
Between 0.001% - 0.01%
Below 0.001%

More than 2%

Between 1% - 2%

Between 0.5% - 1%

Between 0.1% - 0.5%

Between 0.01% - 0.1% 60.9% Between 0.001% - 0.01%

Below 0.001% 2.6%

1.8%

3.9%

10.3%

23.1%

12.1%

22.7%

26.1%

Source: ThomsonReuters Datastream

The two previous exhibits #32 illustrate and reinforce the idea that the liquidity is generally better on the primary stock exchange; 81.8% of cases presenting FFRs at substantial level, i.e. higher than 0.1%. A contrario, the majority of second cross-listings offer poor performances, since 60.9% of cases provide a liquidity level below 0.1%.

To conclude with this part dealing with the liquidity, it emerges that most of foreign cross-listings are inefficient. According to a liquidity matter, only 39.1% of cases comply with the liquidity condition in the efficiency definition, and a closer look at the results shows that outside the United States this number drops to 12.3%.

Finally, only specific cases of foreign cross-listings present good results:

4 Foreign cross-listings resulting from merger operations between companies originally listed in two different countries

4 A majority of foreign cross-listings in the United States

IV.3. Volumes Analysis

IV.3.a. Analysis of the Efficiency

Following the definition of Efficiency, we will now test the second part dealing with the volumes.

#33: Volumes Comparison Between Primary
and Secondary Stock Exchanges

Average share in the total volumes

Cross-listed companies Primary Foreign

Stock Exchange Stock Exchange

US companies (listed on Nyse)

(listed on Nasdaq)

British companies

99.78% 0.11%

99.02% 0.55%

73.41% 20.17%

French companies 89.68% 3.89%

German companies 96.92% 1.14%

Swiss companies 91.62% 4.52%

Australian companies

66.69% 33.31%

Japanese companies 96.48% 3.52%

Source: ThomsonReuters Datastream

As we may notice, the results lead to major differences between countries.

First of all, as regards American companies the trading activities of their foreign cross-listings appears to be very limited, representing on average a share of 0.11% (Nyse Companies) and 0.55% (Nasdaq companies) in the total of volumes. Although foreign cross-listings performed by American companies represent almost 20% of all foreign cross-listings, they provide poor efficiency. The very great majority of volumes are traded on the Nyse and on the Nasdaq.

As regards British companies, two different kinds of cases occur and explain such levels of foreign trading activities.

On the one hand, for several decades many British companies have initiated cross- border mergers, paving the way to the creation of British-based multinational companies such as AstraZeneca (British-Swedish), BHP Billiton and Rio Tinto (British-Australian), Carnival and GlaxoSmithKline (British-American), Eurasian Natural Resources Corp (British-Kazakh), G4S (British-Danish), HSBC Plc (BritishChinese), Anglo American Plc, Old Mutual and SABMiller (British-South African), Royal Dutch Shell, Reed Elsevier and Unilever (British-Dutch), and so on. Nowadays, 20% to 50% of these groups' volumes are traded on a secondary stock exchange, establishing an average of 20.17% whatever the foreign stock exchanges.

On the other hand, British companies are widely cross-listed in the United States, and more especially on the Nyse. According to the exhibit #34, cross-listings of British companies in the United States represent on average a share of 10.6% in total trading volume.

#34: Some Cases of British Companies Volumes Breakdown

Com pany Stock % of Com pany Stock % of

Exchange Volumes^* Exchange Volumes*

Barclays

London 91.9% Royal Dutch Shell London 32.6% New York 7.9% New York 8.5%

London 94.8% Rio Tinto Australian 19.8%

Nyse Alternext 5.1% New York 14.4%

BAT

Carnival

London 49.5% New York 50.5%

SABMiller

London 73.2% Johannesburg 26.8%

Amsterdam 58.8%

Old Mutual

London 71.7% Johannesburg 28.0%

London 67.5%

Anglo American Johannesburg 26.2%

Nasdaq 6.3%

London 65.6%

London 63.3%

Reed Elsevier Amsterdam 34.8%

New York 1.8%

BHP Billiton

London 43.4% Australian 33.8% Johannesburg 8.3% New York 14.3%

G4S

London 82.7% Shire London 59.6%

Copenhagen 17.3% Nasdaq 40.4%

HSBC New York 11.3%

Hong Kong 30.3%

London 58.3%

GlaxoSmithKline

London 82.0% New York 17.8%

London 31.1%

Unilever Amsterdam 62.0%

New York 6.9%

!Source: ThomsonReuters Datastream as of November 2008 see

* Percentages calculated with the 6-months average daily volumes

The average volumes of English and French companies traded on the Nyse represents respectively 10.62% and 15.46% of the total volumes; 73.52% of cases complying with the volume part of the efficiency definition.

However, the findings given in the exhibit #33, provide a general overview by countries but also allow a limited interpretation. For these reasons, we have analyzed the precise distribution of results; keeping in mind that an efficient foreign cross-listing implies volumes greater than 5% of the total volumes.

#35: Volumes Distribution Hold by Secondary Foreign-Listings

Considering All Stock Exchanges Except U.K. and Australian Stock Exchanges

16.3%

8.4%

7.9%

6.5%

4.6%

67.5%

11.7%

44.7%

3.7%

5.0%

5.0%

6.6%

4.1%

86.3%

14.9%

60.6%

More than 20%
Between 10% - 20%
Between 5% - 10%
Between 2% - 5%
Between 1% - 2%
Between 0.1% - 1%
Below 0.1%

More th an 20%
Between 10% - 20%
Between 5% - 10%
Between 2% - 5%
Between 1% - 2%
Between 0.1% - 1%
Below 0.1%

Source: ThomsonReuters Datastream

As we noticed in the exhibit #33, foreign cross-listings performed by British and Australian companies distinguish themselves from the other ones. By eliminating these foreign cross-listing cases, we may have a more precise overview of the situation in other countries (see exhibit #35).

#36: Volumes Distribution:
Focus on the Basic Resources and Mining Sectors

Volumes

As secondary Stock Exchange			On the Primary Stock Exchange

TSX & TSX Venture L.S.E	38.0% 20.8%		62.0% 79.2%	ASX
32.8%	67.2%

Cases >5% of total volumes 78.26% i.e. 90 cases

Source: ThomsonReuters Datastream

The exhibit #36 is quite interesting, since it offers a closer look at the foreign cross-listing phenomenon in the Basic Resources and Mining sectors. The places of Toronto, London and Sydney had been chosen due to their important influences on these two sectors.

As we may notice, these foreign cross-listings provide very good volumes, with figures between 20.8% and 38.0% of the total distribution. But above all, the most striking fact is the figure of 78.26%, corresponding to the percentage of cases meeting the volume efficiency condition.

As regards the volume analysis, the findings lead to similar conclusions to those stated in the previous liquidity part, that is to say the majority of foreign cross- listings are inefficient. Indeed, it emerges that only 32.5% of cases meet the volume efficiency condition, figures falling to 13.7% without taking into consideration U.K. and Australian companies. Nevertheless, some specific cases may provide good results. These cases are listed below:

4 Foreign cross-listings resulting from mergers operations between companies originally listed in two different countries

4 A majority of foreign cross-listings in the United States

4 Foreign cross-listings in a financial place specialized in the company's sector

IV.3.b. Current Tendency: the "Fading Listing"

According to a study of the Banque de France made at the end of December 2007, 38.5% of the companies composing the French index CAC 40⁵⁰ was owned by nonresidents investors. However, the trading activity analysis of the same crop of companies highlights the predominant share of 96.8%⁵¹ held by Euronext Paris, clearly demonstrating that the very great majority of investors are used to buying and to selling their shares on the company's main trading market.

Furthermore, a more detailed look at the evolution of volume distribution in cases of efficient foreign cross-listings reinforces this notion of investors' preference for the most liquid trading place.

The following exhibits #38 illustrate this tendency applied to bi-national companies, materialized by steadily diminishing volumes on the secondary listing places during the years following the merger (see most representative cases of ABB, AstraZeneca, InBev, SABMiller and Anglo American).

By this way, after a certain period of time the most liquid place overrides the other ones, leading to the marginalisation of the secondary foreign cross-listings. Hence, an efficient foreign cross-listing in year T, may become no longer efficient in year T+8 (e.g. see cases of Aventis, SAS, AngloGold Ashanti and Altadis). In this research, this new notion will be called the "Fading Listing". After a merger operation, the fading listing seems to be verified whatever the company's origin country and the secondary stock exchange. The average CAGR⁵² fading listing calculated thanks to the examples presented in the exhibits #38 reaches -19.01%, suggesting that after a merger operation the share in the total volumes held by the secondary listing places losses on average -19.01% per year.

The case of the Anglo-South African SABMiller is probably the most interesting case (see figures in exhibit #38). In 1999 the group SAB (South African Breweries, and later renamed SABMiller after the purchase of the U.S. based company Miller Brewing in 2002) initiated a listing on the L.S.E. At this time, the share in volumes traded in London accounted for 32%, the rest being traded in Johannesburg. Nine years later, the influence is reversed since London henceforth accounts for 73% of the total volumes. During these years, the overall greater liquidity of the British stock exchange had played the role of catalyst by attracting

⁵⁰ Are considered 36 companies belonging to the CAC 40, i.e. except those which have their head offices outside France like EADS, ArcelorMittal, Dexia and STMicroelectronics

51

6-months average, source: ThomsonReuters Datastream

⁵² Compound Annual Growth Rate (CAGR), for more details see Appendix 1

more and more investors. This example confirms the preference of investors for the most liquid places.

However, it is important to have a closer look at the foreign cross-listings in the United States. Indeed the exhibit #37, clearly suggests that a foreign cross-listing in the United States is generally not impacted by the fading listing phenomenon. As we may notice, companies resulting from merger operations with an American company naturally have a significant share of their trading activity performed in New York; share which is even used to gaining in weight over the years (GlaxoSmithKline 18% in 2008 vs. 12% in 2000), Alcatel-Lucent (32% in 2008 vs. 24% in January 2007). But such levels may also concern companies not resulting of a merger operation such as the German companies SAP (24% in 2008 vs. 10% in 2000) and Infineon AG (17% in 2008 vs. 5.8% in 2004), the British Diageo (22% in 2008 vs. 8% in 2000). Therefore, after a foreign cross-listing in the United States, we may state that the American listing gains in importance in the company's total trading activity.

#37: Evolutions of the Share in Total Volumes of Foreign Cross-Listings
in New York (Period 2000-2008)

	British Companies	French Companies	German Companies		Japanese Companies	New York Examples
	+44%	+37%	+373%
	32% Alcatel-Lucent	24% SAP	25% Nidec		% max of volumes traded in New York Company

Source: ThomsonReuters Datastream

AstraZeneca

As of after the merger, i.e. 01/2000 As of 11/2008

TeliaSonera

As of after the merger, i.e. 01/2003 As of 11/2008

Source: ThomsonReuters Datastream

66

#38: Shares of Volume Evolutions

ABB

Aventis

As of 01/2000 As of 11/2008

As of after the merger, i.e. 01/1999 As of 1/2004

Nyse Euronext

Euronext

Brussels
0.04%

Amsterdam
0.03%

Brussels
0.1%

As of before the merger w ith Nyse,
i.e. 5/2007

As of after the creation of Euronext,
i.e. 08/2001

As of after the merger, i.e. 05/2007 As of 11/2008

Amsterdam
-89%

Paris
99%

Paris
8%

9%

Paris

91% Amsterdam

Amsterdam
1%

New York
92%

Paris

-88%

New York

99% Paris

1%

Stockholm

Frankfurt
-88%

-34%

Paris
92%

Zurich
79%

Frankfurt
1%

Zurich
68%

Stockholm
32%

Stockholm
21%

Frankfurt

8% Paris

99%

Unibail-Rodamco

As of after the merger, i.e. 11/2007 As of 11/2008

EADS

As of after the merger, i.e. 01/2001 As of 11/2008

Amsterdam
-31%

Frankfurt
12%

Paris
87%

Paris
90%

Paris
76%

Spain
12%

Amsterdam
13%

Paris

91% Amsterdam

9%

Frankfurt -25%
Madrid -92%

Frankfurt

9% Spain

1%

London
62%

Stockholm
38%

Stockholm

-37%

London
76%

Stockholm
24%

Stockholm
76%

Helsinki
24%

Helsinki

-54%

Stockholm
89%

Helsinki
11%

Fortis

As of after the merger, i.e. 01/1992 As of 11/2008

Amsterdam
90%

Brussels
10%

Amsterdam
-13%

Amsterdam
78%

Brussels
22%

As of 01/2002 As of 11/2008

Copenhagen
26%

Stockholm

41%

Oslo

33%

Oslo -91%

Oslo

Stockholm 3%
68%

Copenhagen
29%

Anglo American AngloGold Ashanti

As of after the merger, i.e. 01/1 999 As of 11/2008

As of after the merger, i.e. 06/2004 As of 11/2008

Altadis

As of after the merger, i.e. 05/2000 As of 2/2008

SABMiller

As of after the IPO on L.S.E, i.e. 12/1999 As of 11/2008

Royal Dutch Shell

InBev

Paris

0.89%

Paris

0.59%

Nasdaq
4%

Johannesburg
-38%

Sydney -75%
Paris -34%

London
68%

Sydney
2%

London
54%

Johannesburg
42%

Johannesburg
26%

Johannesburg

91% Sydney

8%

Johannesburg
97%

Nasdaq
6%

Paris -94%

London
73%

London
32%

Madrid

88% Paris

12%

Madrid

99% Paris

0.7%

Johannesburg
68%

Johannesburg
-60%

Johannesburg
27%

As of after the merger, i.e. 04/2004 As of 11/2008

As of after the merger, i.e. 07/2005 As of 11/2008

Brazil
48%

Brazil -48%

Brazil
25%

London

38%

London -13%

London
33%

New York
8%

New York
11%

Belgium
75%

Belgium
52%

Amsterdam
51%

Amsterdam
59%

Source: ThomsonReuters Datastream

#39: Evolutions of the Share in Total Volumes of Foreign Cross-Listings in
Financial Places Specialized in the Basic Resources and Mining Sectors
(Period 2006-2008)

As Secondary Stock Share of Volume % of Positive

Exchange Variation Variations *

										TSX & TSX Venture L.S.E
		+12.9% +42.2%				38% 33%			ASX
		+45.2%				57%

Source: ThomsonReuters Datastream

* Percentage of foreign cross-listing cases presenting an increase of the weight of TSX, L.S.E or ASX in the total volumes

A first glance at the exhibit #39 would let suggest that foreign cross-listings in specialized financial places are efficient thanks to positive variations of the share in total volumes during the period 2006-2008. The listing fading seems not to be verified for these cases of foreign cross-listings, with shares in volume variation reaching +12.9% in Toronto, +42.2% in London and +45.2% in Sydney.

However, this presumption has to be mitigated since the tendency is not as clear as the one showed in the cases of foreign cross-listings in the United States. Indeed, the findings are not totally convincing, since the percentage of cases with positive variations is relatively mixed for all three listing places, but above all a majority of negative variations on the Toronto and the London stock exchanges. Only the cases presenting negative shares of volumes variation suffer from the fading listing phenomenon.

IV.4. Future of the Foreign Cross-Listing

As regards the analysis of the liquidity and the volumes, the majority of foreign cross-listings (circa 60%) does not meet the efficiency definition and may be considered as inefficient. Among the 40% efficient foreign cross-listings, we may be doubtful about their durability and thus, about their future. According to the tendency we have emphasized in part IV.3.b. Current Tendency: the "Fading Listing", we have the confirmation of investors preference for the most liquid trading place. This last evolution leads to disparity between listing places, where the most liquid place irremediably increases its share in total volumes at the expense of the secondary listing places.

The foreign cross--listing, an "endangered specie" ?

Efficient foreign cross-listings may be depicted into 3 classes: those resulting from merger/acquisition operations, those performed in the United States, and finally those performed in a financial place specialized in the company's sector.

As we demonstrated in part IV.3.b. Current Tendency: the "Fading Listing", the notion of fading listing lets us suggest that efficient foreign cross-listings resulting from mergers/acquisition operations, but also those performed in financial places specialized in the company's sector, do not provide convincing findings and therefore have theoretically no future within the current context of financial markets.

As regards the efficient foreign cross-listings belonging to the last class, i.e. those performed in the United States, they present good results and thus have the best likelihood to "survive". However, our part 111.2. A Major Tendency Has Emerged outlines that American stock exchanges have strongly been impacted by a set of withdrawals performed by foreign companies; tendency which has been spectacularly increasing during the last few years and reached its paroxysm in 2007. This tendency mainly concerns European companies and, according to a study⁵³ of the Committee on Capital Markets Regulation (CCMR), "from 1997 to 2006, the foreign delisting rate from the NYSE averaged 5.3%. When in 2007 the rate spiked to 15.1% (representing delistings by 68 foreign companies)". Such alarming delisting rate, should theoretically lead to the rapid "extinction" of foreign cross-listings in the United States. In this perspective, there remain the cases of foreign cross-listings in the United States performed by companies originating

53

Committee on Capital Markets Regulation (CCMR, http://www.capmktsreg.org), 2007, "Non-U.S. Company Delisting from Nyse soared in 2007"

from emerging countries; but it would not be an heresy to announce that these cases should have the same destiny as the European ones. However such evolution should happen in the long-term, i.e. as soon as financial places in emerging countries would be enough developed.

By taking into consideration the previous points, within a long-term perspective could we conclude that the foreign cross-listing should finally completely disappear ? Obviously, the answer about the future of foreign cross-listing is not as simple as seem to suggest our previous assumptions. First of all, it is important to notice that before every assumption we have made in this chapter, we have used the term "theoretically". Indeed, we may not provide any Manichean answer nor doing any radical announcement such as "in X years, Y% of foreign cross- listings should have disappeared", since another factors beyond those concerning the liquidity and the volumes have to be taken into consideration. Finally, it would be rather difficult to povide precise figures about a tendency which will spread over several years.

Furthermore, some elements are pleading for the sustainability of foreign cross- listing in the long-term.

First of all, merger/acquisition deals will ever exist. For many decades, the number of this type of operation has strongly surged, leading to the creation of multinational companies with multi foreign cross-listings. As long as merger/acquisition operations between companies will exist, there will be foreign cross-listings.

Secondly, we have to take into consideration the political matters we have named "national sensibility" or simply "economic patriotism" (see part I.3.b. Corporate Governance Motivations). Nowadays, we could say that this point is another main obstacle to the complete "extinction" of foreign cross-listings. As we state in the analysis of ArcelorMittal (see following part IV.5. ArcelorMittal's Case Study), it is inconceivable that this company leave the Belgian, the Luxembourgian or the Spanish stock exchanges, even if there are no financial rationales behind such poor traded volumes.

However, may be the on-going revolutions in the stock exchanges industry (see part III.3. A New Deal in the Stock Exchanges Industry) and the development of new technologies applied to the finance will have the last word. Finally, the only one event which could lead to the definitive end to foreign cross-listings would be the creation of a unique worldwide stock exchange. But it is currently impossible to predict that such situation would ever happen.

IV.5. ArcelorMittal Case Study

Nowadays, ArcelorMittal is cross-listed on 5 European stock exchanges, but also in the United States through ADR:

4 Euronext Amsterdam

4 Euronext Brussels

4 Euronext Paris

4 Bourse de Luxembour

4 BME Madrid

4 Nyse

According to ArcelorMittal, the multiple foreign cross-listings allow the company

4 To have an access to the capital markets

4 To benefit from an more attractive financial profile towards investors

4 To benefit from better liquidity for its shares

ArcelorMittal's five foreign cross-listings are the result of successive merger and acquisition operations:

Initially, Mittal Steel was a Dutch company listed on Euronext Amsterdam and on the Nyse, whereas Arcelor was an European company with headquarters in Luxembourg. Arcelor's multi cross-listings were the result of a previous merger (2002) between Usinor (listed on Euronext Paris), Arbed (listed on Bourse de Luxembourg and on Euronext Brussels) and Aceralia (listed on BME Madrid).

Following the Mittal's successful takeover bid on Arcelor in 2006, the newly formed group ArcelorMittal had required the admission of its ordinary shares on Mittal's former listing places: Euronext Amsterdam and Nyse.

Nowadays, in terms of traded volumes for the ArcelorMittal's shares, Paris, Amsterdam and New York are the most important places, respectively representing during the last 6-months 40.29%, 30.08% and 29.22%⁵⁴ of the total volumes.

Volumes traded on Brussels, Luxembourg and Madrid are very limited; each one gathering below 0.5% of the total volumes.

54

Sources: ThomsonReuters Datastream

#40: Distribution of the 6-Months Average Daily Volumes

Nyse

29.22%

Amsterdam

30.08%

Paris

40.29%

Madrid,
Brussels,
Luxembourg
below 0.5%

Source: ThomsonReuters Datastream, as of 28/10/2008

#41: Evolutions of the 6-months Average Volume Distribution
between each Listing Places

23.48%			22.15%	36.58%
	39.92%		38.88%
	36.98%		April 2007 Oct. 2007

0.48%			0.28%	24.63%
			33.48%
			41.36%

April 2008 Oct. 2008

Jan. 2007

80%

60%

40%

20%

0%

35.27%

40.31%

21.45%

100%

2.87%

1.02%

0.92%

Paris Amsterdam Nyse Brussels Madrid Luxembourg

Source: ThomsonReuters Datastream as of 28/10/2008

Note: Brussels and Luxembourg accounts respectively for 0.12% and 0.0023% of the total volumes in October 2008.

#42: Free Float-Rotation and Variations of Share in the total Volumes
between each Listing Places (Period 01/2007-10/2008)

		Free-Float Rotation Variation of Volumes Share			Amsterdam
0.47% -25.4%				Paris
0.63% +87.8%				Brussels
0.00%		+250.3%		Madrid
0.01%		-90.3%		Luxembourg
0.00%		-96.6%		New York
0.42%		-17.1%

Source: ThomsonReuters Datastream as of 28/10/2008

Since the merger of 2006, it is worth to notice the growing weight hold by Paris in the total volumes at the expense of the other places, more especially Euronext Amsterdam, the Nyse and BME Madrid (N.B: regarding its negligible weight of 0.12% in the total volumes, we do not consider Euronext Brussels and its +250.3%). This example illustrates the tendency enounced in part IV.3.b. Current Tendency: the "Fading Listing", i.e. over the years more and more investors tend to buy and to sell their shares on the most liquid place.

#43: Breakdown of Institutional Investors in ArcelorMittal

U.K
23%

France
17%

North America
31%

Rest of Europe
19%

Belgium : 0.4% Spain : 0.2% Luxembourg : 0.1%

Rest of the World
3%

Netherlands
7%

Source: Thomson Financial

The liquidity attracting the liquidity, that is why the great majority of investors prefer to trade the shares of a company on the main trading market, which are, in the case of ArcelorMittal Paris and Amsterdam. Since the merger between Nyse Group and Euronext (Paris, Amsterdam, Brussels and Luxembourg) has probably facilitated the investments of American investors directly on Euronext Paris.

According to the definition of an efficient foreign cross-listing given in part IV.1. Empirical Determination of the Efficiency, only three listing places present volumes above 5%: Paris, Amsterdam and New York. Hence, there are no financial rationales of keeping the cross-listings in Madrid, Brussels and Luxembourg, but the relevance concerning a complete cross-delisting from these three last places is apparently not a topical subject. Indeed as we stated in part I.3.b. Corporate Governance Motivations, we have to take into consideration factors of "national sensibility" since the company is the result of mergers of several national entities from Netherlands, France, Spain, Luxembourg and Belgium. Hence, such delisting operations would not be unfeasible in the future, but would be complicated by the fact of taking into consideration the realpolitik, i.e. the governments' requirements.

Finally, even if the volumes in Amsterdam and in New York continue to decrease, their figures are quite significant to remain above 5% in a mid-term perspective. The question of delisting from these places is not topical, but could become in the future if the tendency is confirmed.

#44: 25-Days Volatility of ArcelorMittal on its Different Listing Places

2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6
	0.4 0.2

Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Brussels Madrid Luxembourg New York Amsterdam Paris

Source: ThomsonReuters Datastream as of 28/10/2008

V. Conclusion

As we have noticed in this research, the phenomenon related to the foreign cross- listing has so far concerned a heterogeneous range of companies. Did the smallest cross-listed company the German company Paion (2007 sales of $7.5m) and the biggest one the American major ExxonMobile (2007 sales of $403bn) have the same purposes when they decided to perform such operation ? The answer is probably negative.

Therefore, foreign cross-listing's rationales may be depicted into three main classes of motivations: business, corporate governance and financial. Generally, the decision to initiate a foreign cross-listing results from a combination of motivations belonging to the three classes. But we may admit one undisputable characteristic that has always qualified foreign cross-listed companies: their international presence. In this perspective, the rationale behind the foreign cross- listing is often to serve the company's international development.

However, at first sight it seems not so easy to draw a precise conclusion about the future of the foreign cross-listing since we may not provide any Manichean answer. Indeed, this research has highlighted that different major tendencies are currently occurring and impacting foreign cross-listings.

On the one hand, the benefits of maintaining a foreign cross-listing have declined over the years and sometimes this kind of operation has begun to appear more as a constraint for companies. Nowadays, the main constraints reside in the costs to comply with the different regulations rules (accounting, communication, and so on), but also in the risks related to the regulation/juridical frames, of which the enactment of the Sarbanes-Oxley Act (2002) is the most probative example. On the other hand, thanks to the internationalisation and the liberalisation of financial markets, investments have gained in mobility and investors are now used to buying and to selling their shares on the most liquid place, thus leading to the creation of important discrepancies in terms of volumes and liquidity between the different listing places. As a consequence, the past few years have seen spectacularly increasing a foreign cross-delisting phenomenon, which had reached its paroxysm during the year 2007. According to the analysis of the rationales given by a large sample of companies announcing their foreign cross-delisting, it emerges that the very great majority point out the low trading volumes (85.5% of cases) and estimate that such volumes on foreign listing places no longer justify a foreign cross-listing. To a lesser extent, it also appears rationales such as the

costs (51.6% of cases, but rationale directly implied by the low trading volumes), the administrative complexity (12.9% of cases) and the deregulation of capital markets (24.2% of cases).

By considering that the company's management are the best judge to return a verdict about a foreign cross-listing, we have expressed the operational definition that should characterize an efficient foreign cross-listing:

In this research, we consider a foreign cross-listing as efficient, from the moment that the volumes and the liquidity on the foreign listing place are "significant" in comparison to those on the primary listing place.

In this research, "significant" implies a free-float rotation higher than 0.1% and volumes accounting for more than 5% of the total volumes.

In this research, the implementation of the statistical efficiency analysis with a sample of 1347 cases of foreign cross-listings leads to interesting interpretations, all highlighting that only three specific cases of foreign cross-listing present good results in terms of liquidity and volumes:

4 Foreign cross-listings resulting from merger operations between companies originally listed in two different countries (e.g. STMicroelectronics, UnibailRodamco, Royal Dutch Shell, ABB, Anglo American, Alcatel-Lucent, Carnival, and so on)

4 Foreign cross-listings in a United States (e.g. on the Nyse/Nasdaq and to a lesser extent on the Amex)

4 Foreign cross-listings in the financial place specialized in the company's sector (e.g. London, Toronto, Sydney for the Mining and Oil & Gas sectors, or the Nasdaq for the newtechs/IT/biotech sectors)

Thanks to the statistical efficiency analysis, it emerges that circa 60% of foreign cross-listings appear to be operationally inefficient.

However, a more detailed look at the evolution of the volumes distribution in case of efficient foreign cross-listing reinforces the notion of investors' preference for the most liquid trading place. For instance, after the analysis of the evolutions of a crop of merger operations, we have developed the new notion of 'fading listing", which clearly materialises the marginalisation of secondary foreign cross-listings. The liquidity attracting the liquidity, the fading listing shows that after a certain period of time the most liquid place overrides the other ones in terms of volumes and liquidity. As a result of steadily declining volumes and liquidity, a foreign cross-listing considered as efficient several years ago may become no longer

efficient and thus be prone to a future foreign cross-delisting. But the analysis also shows that some notable exceptions may occur with the foreign cross-listings in the United States.

However, it is worth to take into consideration that during several years foreign cross-listings in the United States have been deeply impacted by an impressive set of withdrawals performed by foreign companies, most of time European. The main rationales behind this tendency seems to be the loss of attractiveness of American financial markets, but also the recent changes in the S.E.0 regulation with the enactment of the Sarbanes-Oxley Act.

The industry of finance has always been in constant evolution. The growing globalisation and accessibility to financial markets all around the world makes geography less and less relevant. The on-going revolutions in the stock exchanges industry, the new behaviors of investors, the disappearance of restrictions for capital mobility, the development of new technologies applied to the finance, and the simplification of companies' structures, and so on, are some of the main reasons. In this context of financial markets, true notions few years ago may rapidly become outdated or no longer topical. Nowadays, by taking into consideration these different evolutions and tendencies it is not easy to give precise figures and to draw a conclusion about the future of the foreign cross- listing. Indeed, such topic tackles various notions related to the finance, the efficiency, the technologies and the political environment, and that is why there is no obvious answer. In a strict efficiency and financial point of view, this research clearly demonstrates that foreign cross-listings are not sustainable and would not have any future in our current financial markets. However, such conclusion has to be mitigated by taking into consideration the influence of the realpolitik, i.e. all political considerations that are involved such as the economic patriotism. Moreover, we may consider that as long as there will be at least two companies on earth, the opportunities of merger & acquisition operation will ever exist, and thus will result into new foreign cross-listings.

So theoretically, the foreign cross-listing should disappear from our stock exchanges, but the facts have shown that such event should probably not happen.

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Other Sources

Financial Tools

4 Bloomberg

4 ThomsonReuters Datastream

4 Thomson Financial

Internet

4 World Exchanges ( http://www.world-exchanges.org)

4 Nyse: New York Stock Exchange ( http://www.nyse.com)

4 Nasdaq ( http://www.nasdaq.com)

4 Nyse Alternext, former American Stock Exchange ( http://www.amex.com)

4 TSX and TSX Venture: Toronto Stock Exchange ( http://www.tsx.com)

4 Euronext-Alternext Paris, Amsterdam, Brussels ( http://www.euronext.com)

4 L.S.E ( http://www.londonstockexchange.com)

4 Deutsche Biirse ( http://deutsche-boerse.com)

4 SWX: Swiss Stock Exchange ( http://www.swx.com)

4 OMX Nordic Exchange ( http://omxnordicexchange.com), which includes Stockholm, Copenhagen and Helsinki.

4 Borsa Italiana ( http://www.borsaitaliana.it)

4 BME: Bolsas y Mercados Espafioles ( http://www.bolsasymercados.es)

4 ASX: Australian Stock Exchange ( http://www.asx.com.au)

4 TSE: Tokyo Stock Exchange ( http://www.tse.or.jp)

Press

4 Les Echos

4 La Tribune

4 L'Agefi

4 The Independent

Append ix 1

Beta Formula ((3)

Ra =	Cov(ra,rp)
	Var(rp)

CAGR (Compound Annual Growth Rate) Formula

CAGR(toitri) =

( V(tn) ) V(to)

1 / (tri - to) - 1

Correlation between the Sales CAGR (2004-2008) and 2008 PIE

P/E 2008

R² = 0,0631

0% 20% 40% 60% 80% 100%

Nyse

120

100

80

CAGR Sales 2004-2008

60

40

20

0

140

Source: ThomsonReuters Datastream

P/E 2008

R² = 0,0066

140

120

100

80

60

40

20
				CAGR Sales 2004-2008
0

0% 20% 40% 60% 80% 100% 120%

Nasdaq

Source: ThomsonReuters Datastream

Appendix 2: Articles

Source: Agefi 28/05/08 (France)

La Bourse de Tel-Aviv veut attirer les investisseurs français

Le Tel-Aviv Stock Exchange promeut la double cotation.

Des avancées récentes facilitent l'intervention d'investisseurs étrangers

par Violaine Le Gall

Après Londres et New York, le Tel-Aviv Stock Exchange (Tase) vient se présenter Paris aux investisseurs français. La Bourse israélienne affiche en effet des ambitions nouvelles à l'international. Alors que les sociétés de l'Etat hébreu, en particulier technologiques, ont longtemps opté pour une cotation à l'étranger, le Tase cherche à encourager des doubles cotations. A cet effet, il a conclu en 2007 des protocoles d'accord avec le London Stock Exchange (LSE) et le Nasdaq. Ils visent à développer des canaux de communication avec ces marchés et à faciliter la négociation des actions de sociétés cotées en Israël, et aux Etats-Unis ou au Royaume-Uni. Une soixantaine de sociétés ont à ce jour choisi d'être cotées au Tase et à l'étranger. Des équivalences de réglementation facilitent en outre la double cotation. L'Israel Securities Authority (ISA) et l'Autorité des Marchés Financiers (AMF) ont ainsi conclu un accord en début d'année. Selon ses termes, le prospectus d'une société, approuvé par une des autorités, sera accepté, sous certaines conditions, par l'autre. Pour promouvoi r son marché auprès des investisseurs étrangers, le Tase fait valoir plusieurs arguments. D'abord, il a depuis septembre dernier le statut de marché « développé » octroyé par le Footsie. Du coup, les institutionnels qui ont l'autorisation d'investir uniquement dans de telles Bourses, peuvent à présent intervenir sur le Tase. Israël sera en outre bientôt membre de l'OCDE.

Les sociétés cotées sont en outre en train d'adapter leurs comptes aux normes IFRS. La Bourse de l'Etat hébreu a par ailleurs conclu en janvier dernier un accord avec l'éditeur informatique GL Trade. « Ceci permettra d'intégrer le Tase dans les réseaux de GL Trade, ce qui offrira aux investisseurs étrangers un meilleur accès à nos marchés », explique Ester Levanon, directeur général du Tase. Le système sera opérationnel à partir du second semestre.

Le marché actions israélien a déjà bénéficié ces dernières années d'une forte croissance des investissements étrangers. Ils atteignent 4,5 milliards de dollars depuis 2005. Le mois dernier, le volume quotidien traité s'élevait à 612 millions de dollars sur les actions - 25 % émanent d'investisseurs étrangers - et à 1,138 milliard sur les produits de taux. La capitalisation du marché actions représentait 218 milliards de dollars pour 651 sociétés cotées.

Source: Agefi 28/05/08 (France)

Les procédures judiciaires américaines visent aussi les sociétés cotées à Paris

La connaissance de certains principes et une communication appropriée permettent d'amoindrir les conséquences des recours d'actionnaires

La multiplication des poursuites intentées par des investisseurs américains à l'encontre d'entreprises cotées sur Euronext (Vivendi, Michelin ou plus récemment Société Générale) a mis en lumière les enjeux importants auxquels peuvent être confrontées celles- ci, notamment dans la procédure d'action collective (class actions). « La prise en compte de certaines spécificités juridiques en vigueur outre-Atlantique constitue un moyen efficace de minimiser des risques aux conséquences financières parfois très importantes », souligne-t-on au cabinet Orrick Rambaud Martel qui a organisé hier un colloque sur le sujet. Le caractère fastidieux de la procédure a ainsi pour objectif de favoriser un accord à l'amiable afin d'obtenir réparation du préjudice subi à travers des dommages compensatoires et punitifs, ce dernier aspect étant inconnu du droit français : 95 % des actions collectives intentées depuis la loi de 1995 réformant les procédures de litiges boursiers ont finalement été résolues avant le procès. Ceci est d'autant plus important que le périmètre de l'action collective atteint non seulement l'entreprise mais également les parties liées comme les auditeurs ou les banquiers d'affaires.

Une société non cotée outre- Atlantique peut être concernée par une action judiciaire aux Etats-Unis en cas d'OPA, de restructuration ou de cession à des résidents américains. Dans le cas d'une émission

d'ADR (certificats d'action), « la responsabilité sera plus importante pour la société si elle sponsorise cette opération, le transfert des risques se faisant vers les banquiers en cas d'émission non-sponsorisée», précise le cabinet d'avocat. La bonne appréhension de ces risques peut lui permettre non seulement de mieux les gérer, mais parfois de les éviter. La question se pose pour des sociétés qui organisent une présentation aux Etats- Unis auprès d'investisseurs potentiels ; une précaution particulière s'impose alors concernant les prévisions de bénéfices, qui peuvent donner lieu à des recours ultérieurs si la société se trouve dans l'incapacité d'atteindre les objectifs annoncés et que le cours de Bourse chute de façon importante. Afin d'alléger les obligations des sociétés européennes en matière d'information financière, une harmonisation entre les normes américaines (US GAAP) et internationales (IFRS) apparaît bien comme la meilleure solution à moyen terme.

Source: Les Echos 20/08/08 (France)

ELI LEDERMAN - DIRECTEUR GÉNÉRAL DE TURQUOISE : « Nous espérons afficher 5 % des volumes européens avant la fin de l'année »

Les premières heures de la plate-forme alternative n'ont pas altéré l'optimisme des dirigeants de la plate-forme Turquoise. Son directeur général, Eli Lederman, revient pour « Les Echos » sur la montée en puissance de cette solution concurrente des Bourses traditionnelles ainsi que sur ses objectifs.

Turquoise a démarré vendredi son activité sur un nombre restreint de valeurs britanniques et allemandes. Comment cela se passe-t-il ?

Tout se passe très bien. Nous sommes dans une phase intermédiaire entre le test et la production. Le moment, pour tous les acteurs, de vérifier que les systèmes fonctionnent. Quatorze de nos membres se sont connectés vendredi et d'autres devraient les rejoindre cette semaine. Ils devraient être au nombre de 50 en septembre. Les premières valeurs françaises et néerlandaises seront accessibles aujourd'hui et les premières valeurs tests pour les autres marchés européens seront ajoutées d'ici à la fin de la semaine.

Turquoise sera donc complètement opérationnelle au 5 septembre ?

En réalité, toutes les valeurs seront disponibles mais l'activité de tenue de marché ne décollera que progressivement. Elle sera testée d'ici à la fin du mois et durant les deux premières semaines de septembre. De fait, si l'activité de la plate-forme devrait déjà être bien rodée à la mi-septembre, nous prévoyons de faire notre lancement formel et de donner le coup d'envoi à notre campagne marketing et publicitaire à partir du 22 septembre.

Quels sont vos objectifs en termes de part de marché pour Turquoise ?

Avant la fin de l'année, probablement dès les deux premiers mois d'existence, nous pensons pouvoir afficher 5 % des volumes de négociation sur les marchés européens. Le cap des 10 % devrait ensuite nous permettre d'être en bonne position financièrement.

Comment voyez-vous l'avenir pour les Bourses traditionnelles ?

Pour moi, d'ici douze à dix-huit mois, les Bourses traditionnelles devraient afficher des parts de marché inférieures à 50 %. Nous sommes très compétitifs. Les chiffres de Chi-X sont bons. Peut-être ferons-nous mieux. Certes, la donne a quelque peu changé depuis que nous avons publié nos tarifs. En particulier, EMCF, la filiale de Fortis qui assure les services de compensation pour Chi-X, a annoncé des réductions tarifaires. Mais il est probable que nous annoncerons de nouvelles baisses des coûts dans le courant du mois de septembre.

Seule ombre au tableau, le marché italien reste encore hors de portée pour vous. Pourquoi ?

Euro-CCP, qui assure les services de compensation pour nous, s'était entendu sur un calendrier de lancement avec Monte Titoli, le dépositaire central italien. Entre-temps, l'organisme italien, pris sur d'autres projets plus importants, a fait savoir qu'il ne pouvait plus assurer ces tests. Le dépositaire semble aujourd'hui penser qu'il sera en mesure de le faire dès le mois d'octobre mais il ne s'est engagé sur aucune date.

Monte Titoli appartient au groupe LSE. Soupçonnez-vous une tentative de blocage ?

Je ne participe pas à leurs réunions. Ce que je vois, c'est le résultat et il n'est pas bon pour Turquoise, pour ses membres et pour les investisseurs en Europe. Plusieurs notes de recherche ont démontré que les plates-formes alternatives, via l'activité de tenue de marché, aboutissaient à des meilleurs prix, autrement dit, apportaient une valeur ajoutée pour les investisseurs. La volonté derrière la directive Marchés d'instruments financiers (MIF) était de parvenir à un marché européen ouvert.

Cette phase de développement étant sur le point d'être achevée, le capital de Turquoise va-t-il évoluer ? Allez-vous développer d'autres projets ?

Je pense effectivement que le capital de la plate-forme va changer. Nous travaillons actuellement sur un plan, qui pourrait être rendu public en septembre ou en octobre, prévoyant d'autoriser les utilisateurs importants de Turquoise à en devenir actionnaires. Et nous discutons déjà d'autres projets, comme la couverture de nouvelles classes d'actifs ou de nouvelles zones géographiques.

Source: The Independent (U.K.)

http://www.independent.co.uk/news/business/news/aim-companies-bid-for-dual-listings-oneuronext-to-boost-liquidity-780363.html

AIM companies bid for dual listings on Euronext to boost liquidity

By Jon Mainwaring Sunday, 10 February 2008

A flurry of companies on London's Alternative Investment Market are seeking listings with Euronext in a bid to attract investors uncomfortable with the junior market.

NYSE Euronext is involved in a major marketing effort to court disgruntled AIM companies fed up with a lack of "liquidity" - or limited trading in their stock - on the London exchange.

Euronext has set up a rival to AIM - which has until now been the world's most successful exchange for new and fast growing companies - called Alternext and is desperate to attract UK companies to it.

A spokesman for Euronext said: "We are getting more and more requests for dual listings from AIM companies."

A dual listing is when a company raises capital and has shares quoted on more than just its "home" market.

David Chestnutt, the chief executive of Proventec which revealed plans last week to seek admission to Euronext, said: "European investors are not comfortable dealing in the AIM market. There aren't many market makers handling our shares, there aren't many market makers handling most AIM shares." Mr Chestnutt maintained he did not want to knock AIM but said he wanted to provide better liquidity for his European investors.

Proventec is the third AIM company to seek a dual listing in the last five months.

William Paterson-Brown, the executive chairman of Accsys, another AIM company, which listed its shares on Euronext in September, said the dual listing gave access to European fund managers that are currently barred by their rules from putting their investors' money into lightly regulated markets such as AIM.

The AIM market's success has made it the subject of controversy in the past because of its light regulation. Roel Campos, a Commissioner at the US Securities and Exchange Commission, once said the junior market "feels like a casino to me".