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

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.