Europeans fall out of love with listing in New York

Changes in corporate governance mean many foreign companies see less value in once-prized places on Wall Street.

A New York listing was once a symbol of corporate virility for European executives. When companies wanted to signal they had made it on the world stage, they would head for the US to float their shares on the world's deepest pool of investor capital.
In a recurring bull market ritual executives would turn up on Wall Street to ring the opening bell for trading on the New York Stock Exchange. After watching their debut, they would then tread a well-beaten path to the US business TV studios.
The potential reward promised by fee-chasing investment bankers was an uplift in their stock market ratingsfrom access to a much larger shareholder base and a potential currency for US acquisitions.
But a growing number of European companies are now questioning the worth of a secondary US listing.
The catalyst has been the Sarbanes-Oxley corporate governance legislation introduced in the wake of Enron's collapse, which has sparked a belated outcry among European companies.
At a time when they are already struggling to cope with complex new international accounting standards, many say the additional
"onerous" demands of meeting Sarbanes-Oxley requirements see the costs of a US listing outweigh the benefits.
"If we knew Sarbanes was coming, we would never have listed there in the first place," says a finance director of a top FTSE 100 company. However, just as significant in the Europeans' re-assessment of their US listings has been the increasing numbers of institutional investors investing outside their home market. —
In the past, many US institutional shareholders were precluded from venturing abroad by mandates agreed with their clients.
But such restrictions are now rarer. "You don't have to have a US listing to have a significant US shareholder base any more," says Mike Lynch, chief executive of Autonomy, a UK software company planning to delist from Nasdaq next year.
Peter Reynolds, head of investor relations at leisure company Rank Group, said recently: "It is very rare now to come across a US institutional investor who cannot invest directly overseas."
Mr Lynch says Autonomy, like other companies with American Depositary Receipts listed in the US, has seen a migration of share-
holders to its more liquid home market. When the company listed on Nasdaq in 2000, some 40 per cent of its shareholding base comprised investors holding its ADRs.
This level has shrunk to less than 1 per cent. Mr Lynch says it has become increasingly difficult to cater to the minority of ADR holders. "It is a question of cost versus benefit. It was getting to the point where it was just crazy," he says. Autonomy estimates the cost of maintaining its US listing can be $1,000 a year for every ADR holder, some of whom were very small investors. But most companies will find it difficult to follow suit. US regulations on delistings used to be dubbed the "Roach Motel" rules -once you entered the market, you could never leave.
The rules have been eased over the past five years to make delisting more straightforward. More complicated is the de-registration from the Securities and Exchange Commission.
This can only occur if the number of a company's US shareholders fall below 300.
This makes it almost impossible for large companies to deregister.
Several European business groups are now lobbying the SEC to ease the deregistration requirements, which they see as a restraint on trade. But even if they succeed it will put many companies in a quandary.