Since ARM Holdings floated on the New York Stock Exchange in preference to London last November, the semiconductor-design group’s share price has appreciated by 165%. Building materials specialist CRH’s share price has risen by more than 50% since it shifted its primary listing to New York a year ago. In a weak market for mining shares, BHP has outperformed Rio Tinto by approximately 10% since it moved its listing to Australia in early 2022.
The success of their moves and the beneficial effect on their share prices is encouraging UK companies to follow in their footsteps. As UK-based outfits they face a rising rate of corporation tax (up from 19% to 25% this year); share prices depressed by the stamp duty investors have to pay on purchase; increasing and hostile regulation and a government at best indifferent to the private sector.
Why is London a less attractive exchange?
London is no longer a major capital market and the shareholder lists of FTSE 100 companies are now dominated by overseas investors, usually Americans. In the past 25 years, British pension funds have reduced their allocation to domestic equities from over half to just 6%. For regulatory reasons, insurance companies hardly invest in UK equities at all. Private investors do, via passive funds such as exchange-traded funds (ETFs), unit trusts and investment trusts, but in effect, UK companies are controlled from overseas.
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The media and public opinion resent the profits listed firms make and, especially, the amounts paid to their senior management, even though pay scales are well below US levels. The tax they pay on those earnings is far higher than they would pay in the US, as are taxes on capital.
An increasing number of executives are non-domicile, and they will not appreciate the adverse change in the tax rules governing their status. Many are residents overseas, and therefore already detached from the UK. Moving their company away from London is attractive from a personal as well as a corporate point of view.
Read more: Is the London Stock Exchange in peril?
10 companies that could leave London
Who will be next? There has been much speculation and the list is long, but the following no longer have any special ties or loyalty to the UK.
Mining giant Rio Tinto, with a market capitalisation of £60 billion, is one possibility. Rio Tinto’s shares have been dual-listed in London and Australia since 1995. The London-listed shares have traded at a 20% discount to their Australian counterparts, though the discount has narrowed recently owing to speculation that Rio Tinto will follow BHP and become a fully Australian company. Needless to say, Rio Tinto has no mines in the UK.
Shell, worth £170 billion, could leave too. When Royal Dutch Shell unified its corporate structure in 2005, it moved its headquarters from The Hague to London and its primary listing to the UK. As the UK becomes more hostile to hydrocarbons and the Netherlands less so, it may be tempted to move back.
Shell’s rival BP, with a market value of £70 billion could also go. BP’s diversification into renewable energy – a field in which it could add no value – is in retreat. BP still has assets in the North Sea, but the UK government seems determined not only to issue no new exploration licences but also to close down existing operations. Meanwhile, 13 years after the Deepwater Horizon disaster, BP is again increasing its focus on the Gulf of Mexico, where it is the largest producer, and plans to drill a new oilfield. Moving its headquarters to Houston, its main listing to New York and changing its name to AP (American Petroleum) makes sense.
Then there is HSBC, worth £120 billion. HSBC moved its main listing to the UK in 1993 following its acquisition of Midland Bank. But its British business is small – hence the downsizing of its headquarters from Canary Wharf to the City. Half of global revenue comes from Asia and London is ceasing to be the global financial centre it once was. The Chinese would like to persuade it to move back, whether to Hong Kong or Shanghai.
Or could tobacco giant BAT, with a market cap of £61 billion, be next? In response to pressure from investment management group GQG Partners to move its primary listing to New York, BAT’s CEO Tadeu Marroco described the idea as “a distraction” – not exactly a denial. BAT’s main rival, Philip Morris, listed in New York, trades on a significantly higher valuation.
BAT was formed a century ago when it agreed with Imperial Tobacco that it would leave the British market to Imperial while Imperial left the rest of the world to BAT. That agreement was torn up decades ago, but BAT’s sales in the UK are still insignificant, making a move to the US (44% of sales) an easy option.
The £200 billion pharmaceuticals group AstraZeneca, meanwhile, is threatening to move its vaccine manufacturing to the US because the government intends to cut its financial support for a new factory. Furthermore, the reluctance of the NHS to pay for pioneering drugs hardly makes the UK a great place to base a pharmaceutical business. Unlike London, moreover, Stockholm’s stock market is thriving.
Prudential's London listing is surely doomed. Such has been the growth of £18 billion insurer Prudential’s Asian business that it has come to dwarf the company’s once-dominant UK focus. After Prudential spun off its British business with M&G in 2019, Prudential no longer had a significant business here. It has joint primary listings in London and Hong Kong and its CEO is based in the latter.
Ashtead, an industrial-equipment rental outfit worth £23 billion, is one of many firms founded in the UK but whose primary business focus has moved elsewhere, in this case to the US, which now makes up 86% of sales. It reports in US dollars – as do more and more footloose companies – and has been rumoured to be considering a move. Its response was to say it had “no immediate plans to move”, but that was three months ago.
Unilever, the food and consumer products behemoth with a market cap of £120 billion, was formed by the merger in 1930 of Lever Brothers with the Dutch Van den Bergh, which resulted in Unilever’s shares being dual-listed. An attempt in 2018 to unify the Dutch and British share classes in the Netherlands was thwarted by investors, so in 2020, the unification was effected with a sole listing in London. Perhaps those shareholders are now regretting their preference and the Dutch may have become more amenable on tax and regulatory issues. It would be surprising if Unilever were not thinking of going back to plan A.
Another Anglo-Dutch company, RELX, which specialises in data analytics and is valued at £65 billion, unified its share classes in 2018 but retains a secondary listing on Amsterdam’s Euronext and is listed as an American Depositary Receipt (ADR) in New York. North America now accounts for 59% of its revenue, and Europe, including the UK, just 21% so RELX could as easily move to the US as to the Netherlands.
In addition, FTSE 100 companies that have chosen to list their shares in London but have little if any business in the UK, such as Antofagasta, Anglo American, Endeavour Mining, Fresnillo, Glencore, Coca-Cola HBC, Airtel Africa, Mondi and Hikma Pharmaceuticals could easily move on.
Why have these firms not gone already? The answer lies in inertia, the inconvenience and cost of moving, the hope that things will get better and they are waiting to see what other companies will do. Many will have explored the pros and cons of moving and may have made contingency plans but have opted not to go yet. That could change suddenly. When the Titanic hit an iceberg, there was no immediate rush for the lifeboats, but as it became clear that it was sinking, the wait-and-see attitude turned into a stampede.
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