It is ironic that the UK’s chief financial regulator, the Financial Conduct Authority (FCA), should choose this month as the time to change the rules for companies to list their shares on the London Stock Exchange. The most important of the FCA’s changes is that companies with a dual-voting structure will once more be allowed a premium listing. That means their shares can be included in the main FTSE indices, especially the FTSE 100 and FTSE 250.
The irony lies in the fact that, playing out over the next couple of weeks, will be the end game to a bid that, plausibly, would have been unnecessary had the rules already been in place. The bid in question is the offer for the non-voting ‘A’ shares in Daily Mail & General Trust (DMGT) by the Rothermere family, who control all the voting rights in the publishing group via just 8 per cent of its equity capital.
Among the reasons for justifying the bid is that the family, now in its fourth generation of control, has no intention of reducing its presence. Yet arguably DMGT’s share rating is depressed by the company’s dual-voting structure, a major effect of which is that the shares are not held in tracker funds since they are not a constituent of the FTSE 250 index even though DMGT’s market value – £2.3bn – is plenty big enough. The solution, suggest the Rothermeres and DMGT’s independent directors, is to take advantage of the fact the group is flush with cash following a corporate tidy-up and make a cash-and-shares offer for the non-voting stock to take DMGT private.
Granted, there is not a clean read-across from DMGT’s share structure and the FCA’s rule changes. But basically the new rules remove the moral stain from companies that allow one layer of equity capital to have superior rights over other layers. Such practices, once widespread, were deemed an unacceptable relic from fuddy-duddy times by the 1990s and contrary to the egalitarian image the City was keen to project. Thus the likes of DMGT had to change their ways or be consigned to a circle of hell where their share rating was always depressed.
But times change and the City’s moral compass – sensitive to the practicalities of life – changes with them. In the 1990s, London’s stock market projected the image of modernity by eschewing dual-voting structures while it welcomed overseas capital and the innovation that came with it. Now, however, modernity acknowledges the usefulness of mixed voting rights and of lowering the proportion of a newly-listed company’s shares that must be in public hands.
At the bottom line there is money, or lack of it. From the late 1980s to the mid-2000s London’s stock market was a global leader. Now it is an also-ran as its share of new listings has plummeted and the value of its listed companies has crumpled compared especially with the US’s. Hence government-sponsored reviews to fix that, chief of which was March’s UK Listing Review, led by Lord Jonathan Hill, a PR man and Westminster lobbyist who was the European Commissioner for financial regulation from 2014 to 2016. It is the listing review’s recommendations that the FCA has put into practice.
By permitting dual-voting structures, admittedly with restrictions, the new listing rules may address what was perhaps the worst aspect of London’s decline – that its stock market had become a rest home for old-industry trundlers with barely a technology stock in sight. No longer should tech entrepreneurs be discouraged from choosing London for fear that their corporate adolescent will be snatched from them by a takeover artist.
Hopefully, that notion will prove correct. But what goes around comes around. Dual listings were acceptable, then disparaged and are now acceptable again. Yet almost inevitably tensions are created when one class of shareholders get more rights than others. Sooner or later, such rights will be abused. That’s how the world is.
That worry is for the future. Meanwhile, the Rothermere attempt to take the family company private is not the formality it seemed to be. But assuming it does succeed, cash-rich ex-DMGT shareholders might consider putting some of the proceeds into cross-border payments company Wise (WISE), which is just the sort of young tech company that should be encouraged by the FCA’s new rules. Since its bosses surprisingly chose to float the shares in London this summer their price has dropped 15 per cent to 748p. That seemed to confirm the worst fears. But now London is demonstrating its welcome for technology companies, who knows, maybe a trend will start to roll? Wise will be joined by similar companies and its share price will revive accordingly. Let’s hope.
