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
* 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
