Will the last company to leave the London Stock Exchange please turn out the lights?
Actually, the position is not – yet – as bad as that. Building materials group CRH, which, at £31.7bn, is the 19th largest company in the FTSE 100 index, said it will be heading for the exit but its reasons for planning to switch its primary listing to the US aren’t silly.
Three-quarters of CRH’s revenues are in the US these days and it is probably only sensible to try to appear more American when the US is spending squillions to upgrade its infrastructure. In any case, CRH’s links to the UK market aren’t deep. It is an Irish company that moved its primary listing to London as recently as 2011.
In similar fashion, other escape plans haven’t been created on a whim. When mining giant BHP tired of its clunky dual-headed Anglo-Australian corporate structure in 2021, unifying down under was logical: the company is Australian by history, culture and operations.
Ferguson, the company called Wolseley for most of its life, had deeper British roots but, like CRH, its US business had become dominant. As for Flutter, the FTSE 100 gambling company contemplating a secondary listing in the US – and perhaps a primary one thereafter – its rationale is similar: a US betting boom is in full swing and the winnings may eventually eclipse those from its Paddy Power and Betfair operations. (The fact that Ferguson and Flutter’s executives should find it easier to pay themselves megabucks American salaries may or may not be coincidental.)
Any fair tally must also include the ones that thought about leaving but stayed. Unilever’s board wanted to go wholly Dutch but ended up unifying in London when its UK shareholders revolted. Shell, the FT reported this week, thought about going American in 2021, but consolidated in London – and, indeed, dropped the “Royal Dutch” bit in its name along the way.
All the same, the sense of decline for London’s status and clout is undeniable. It will only intensify if, as expected, Japanese group SoftBank opts to relist Arm Holdings – London’s one-time technology star – in New York.
Two deep causes are obvious. First, UK pension funds don’t own the UK market like they used to. The Investor Forum, which represents shareholders with about £700bn in UK equities, produced startling statistics a few months ago to show the changing profile of share ownership. International ownership of FTSE 100 firms increased from 12% to 56% between 1990 and 2020; ownership by UK pension funds and insurance companies, who charged into safety-first bonds, declined from 52% to a little over 4%. It is little wonder that UK-listed companies may feel more footloose if their ultimate owners aren’t tied to the UK.
This would be less of a problem were it not for the second factor – the lack of interesting new arrivals on the market. London’s global market share of flotations, or IPOs, has been falling for years.
The real frustration here, though, is the seeming inability to produce a strategy to fight back. Rules were tweaked to encourage the tech sector, but the supposed prize turned out to be less than glittering when the Covid crop of IPOs produced flops such as THG, Deliveroo and Made.com.
Better ideas are in the offing. Julia Hoggett, the new-ish boss of the stock exchange who has spoken about the need to make London “young, scrappy and hungry”, has raised the interesting idea of creating a regulated UK market to allow private companies to trade shares more easily – a sort of halfway house before full listing. Yes, that might save a few firms from being gobbled by US venture money before taking the leap.
Similarly, a round of consolidation among defined-benefit pension schemes might stop the hollowing-out of ownership and create institutions with an appetite to own UK equities. That is one proposal in the government’s so-called “Edinburgh reforms”. It sounds more promising than another sterile debate about whether London needs to lower its governance standards.
But London needs to get on with it. The Financial Conduct Authority is reviewing the listing rules with a view to collapsing the “standard” and “premium” segments. The exchange has its “capital market taskforce”. And the government has its Edinburgh agenda. This parade of consolations and workstreams is all very well, but life moves fast. City advisers warn that the next departees may not be firms that are semi-detached already. The lure of US dollars is strong.
It “is what it is”, said David Schwimmer, chief executive of the London Stock Exchange Group, about CRH. Yes, we know what he meant: some companies with mostly US businesses may drift away. But, come on, this is not a moment to sound phlegmatic. The London market needs a strategy before a trickle becomes a flood.