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Let’s imagine for a moment that we are an American company that wants to go public. There are many things to think about, but deciding where to list is not one of them, as New York is the only option available. However, in Europe, location has become a crucial and surprisingly insignificant issue.
A clear example of this is the case of Vivendi, the French media conglomerate that is trying to break up. The group, controlled by the Bolloré family, is listed on the stock exchange (and has its headquarters) in France. It is spinning off its advertising agency Havas and its broadcaster Canal+. The former is moving to Amsterdam, while the latter will join the ranks of the beleaguered London stock market.
This decision is not motivated by the geographical presence of the two companies. Havas does not have an overwhelming Dutch franchise and while Canal+ is an international broadcaster, with English-language films such as Terminator In its favour, it is not a British company. The presence of comparable high-value companies does not seem to feature prominently either. Publicis, the highest-rated advertising agency, is listed on the Paris stock exchange.
Rather, exchanges appear to compete on governance, flexibility and ease for issuers. Havas, for example, is a relatively small agency, in a field dominated by the likes of Omnicom and Publicis, and could attract a predator. The fact that Euronext allows majority shareholders to exercise multiple votes – in a more liberal way than, say, France – was part of Vivendi’s considerations.
These attempts at arbitrage between the various stock markets highlight the weakness of the European stock exchanges. Daily trading in the European Stoxx 600 represents only 0.6% of the free float, while on the Nasdaq it is about twice as much. There is no single market that issuers are forced to turn to based on the capital funds they attract.
This leaves the field open for relatively futile attempts at micro-optimisation. The temptation, then, will be for exchanges to continue bidding for businesses by relaxing listing rules. Perhaps London, which has softened its stance on dual-class shares, might consider allowing even greater disparities to emerge between shareholder classes. Managers may also be tempted to look for places where pay sentiment patterns allow for discretion or result in higher pay.
Of course, business-friendly practices have a role to play, as long as they do not deter investors from investing in stock markets, but European exchanges are exposing themselves to a new race to the bottom on regulations, failing to deliver on their core priority of providing a deep liquidity market that can rival that of the US.