Exchange Shopping

European stock exchanges may be aggressively marketing to foreign corporates. But U.S. companies need a good business reason to list overseas.

While he was initially reluctant to take on the project, which meant finding a UK stock-transfer agent that could connect with the company’s U.S. agent and amending his GAAP-compliant financials for some specific UK requirements (like audited forward-cash balances), Whitwell found the process to be more rewarding than he expected. Compared with the OTC, “the LSE is a broader exchange,” notes Whitwell, and “we’ve had more volume.” Besides the cash in the bank, the move garnered the company an additional 20 or so investors and a concession from preferred-stock holders to convert their shares to common stock, boosting Clean Diesel’s market cap from $5.4 million to $22.5 million.

New York Rules

Still, most U.S.-based CFOs can afford to be somewhat circumspect about global exchange consolidation, at least for now. After all, they have the most-liquid markets in the world to fall back on. Says Beaney: “The fact that 149 [European Union] companies are listed on Nasdaq compared with 41 U.S. companies listed on new markets across Europe clearly illustrates the different appeal of various markets.” EU residents also poured $280 billion into U.S. stocks and bonds last year, according to the Securities Industry Association, compared with the $14.7 billion U.S. investors put into EU securities.

The superior liquidity of the United States, says Concord’s Cruz, is the main reason she’s decided against dual listing for now. “We have 17 million shares on Nasdaq, and would do another offering for perhaps 4 million shares in Germany–so why wouldn’t a German investor just trade on Nasdaq?” she asks.

Cross-listing also isn’t without cost. In addition to the logistical problems a company faces in coordinating investor relations across time zones, as well as the language problems and currency risk, the fees associated with listing can be significant. London tends to be the most expensive of the major EU exchanges, say experts, largely due to the relatively high professional-service fees in the city. Clean Diesel, for example, paid about $250,000 last year for auditing, legal, and listing costs, and will likely pay between $50,000 and $75,000 annually. In general, the LSE says listing costs (including legal, public relations, and accounting fees) run about 6 percent to 9 percent of the offering, plus the ongoing costs.

Those fees are pushing a number of companies to rationalize their listings. NYSE-traded The Gillette Co., for example, pulled its shares from the London and Paris markets during the past decade “because of the fees and bureaucracy involved in listing,” according to company spokesman Stephen Brayton. The only international listing it has chosen to keep is on the Deutsche Boerse, in part because of the company’s German Braun division–”and also the fact that the Frankfurt exchange has a reasonable fee structure,” he adds.

Getting Closer

To be sure, U.S. companies are finding other ways to appeal to European investors. Concord’s Cruz says she has begun visiting European investors, typically in the UK, about every six months in lieu of listing. Others have participated in similar trips organized by their investment banks or by U.S. exchanges. Sybase Inc., for example, traveled with Nasdaq and NYSE representatives several times during the past three years to meet with European and Asian investors, and is planning another trip this fall. “There is a tremendous opportunity overseas, especially with foreign investors looking for ways to diversify out of their local currency base,” says John Cummings, director of investor relations for the Dublin, California-based technology firm.


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